Browsing by Author "Wilkman, Maria"

The aim of this empirical study is to analyse whether announcements by Moody’s, Standard and Poor’s and Fitch Ratings regarding the credit rating of Ukraine and Russia can explain the movements in the yield spreads on their government bonds during 1st January 2010 – 6th February 2015. The motivation for this research question derives from the results of previous empirical studies, which have found that announcements by the three credit rating agencies regarding the sovereign rating of a country impact the country’s borrowing costs. Particularly negative rating news, concerning either a downgrade or the assignment of a negative outlook to the rating, have been found to impact yield spreads, leading to increased borrowing costs for the country. Against this background, this study analyses whether the many negative announcements from the credit rating agencies regarding the Ukrainian and Russian sovereign ratings can explain the large increases in the countries’ government bond yield spreads since 2010. The methodology used in the empirical study is based on regression analysis, which incorporates an event study through the use of dummy variables. The overall findings indicate that announcements from the rating agencies affect the government borrowing costs of the country concerned, as the results show a statistically significant impact of the announcement events on the country’s bond yield spreads. However, as the impact of the events on the yield spreads is considerably smaller in magnitude than the movements in the spreads, the results indicate that factors other than the rating agency announcements are driving the large increases in the Ukrainian and Russian borrowing costs. The conclusion of the study is therefore that although some of the announcements are found to be statistically significant, the rating events alone cannot explain the movements in the yield spreads on the countries’ government bonds during 1st January 2010 – 6th February 2015. Contrary to previous studies, the results show no clear evidence that negative events affect yield spreads to a greater extent than positive events. There is also no considerable difference in the impact on the yield spreads between announcements by the different agencies. In terms of the magnitude of the impact of rating events on yield spreads, the results of this study are largely in line with previous findings in the literature. The analysis of the relationship between credit rating announcements and government bond yield spreads for Ukraine and Russia since 2010 presented in this paper is divided into five chapters, which approach the research question from different perspectives. Chapter one provides the necessary background for the analysis and offers a theoretical explanation for why announcements by the rating agencies may impact the yield spreads on a country’s government bonds. Chapter two presents an overview of the empirical literature on the topic; three previous papers which use event study analysis to investigate the impact of rating agency announcements on government yield spreads are discussed and evaluated. Against this background, chapter three describes the empirical methodology used in this paper to study the relationship between Ukrainian and Russian credit rating announcements and yield spreads; the data set on which the analysis is based is introduced in chapter four. The results of the analysis are discussed in chapter five, followed by concluding remarks.