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Title:Three essays in financial markets and banking
Author(s):Spencer, Xiangyi Xie
Director of Research:Pennacchi, George
Doctoral Committee Chair(s):Pennacchi, George
Doctoral Committee Member(s):Almeida, Heitor; Huang, Jiekun; Irani, Rustom
Department / Program:Finance
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Commercial paper
Credit rating
Earnings management
Soft information
Bank internal credit rating
Abstract:My first essay, Domestic, Nonfinancial Commercial Paper after 2000, examines why the commercial paper (CP) outstanding of domestic nonfinancial firms plunge in early 2000's and never recover. By looking at the past 21 years from January 1993 to December 2013, with a sample including all domestic, non-financial, non-utility firms that have CP ratings from Moody's, I find two main results. First, I find that firms' financing needs have been decreasing at the aggregate level since 2000. Additionally, although there have been constant new entrants, a big decline in CP market entry largely due to the credit deterioration of U.S. corporations since 2000, coupled with a high CP market exit rate largely due to a significant credit deterioration in the CP market itself has led to a large decline in CP issuers. With the average firm's CP issuance generally stable, the entire CP outstanding has remained at a low level. Among all firms, P-1 rated firms appear to contribute the most to the decrease of CP outstanding. An examination of the industry composition also provides evidence that firms from some industries that used to participate in CP market has now stopped accessing the market. Secondly, when a firm with a prime rating (P-1/P-2) expect a credit downgrade, has a lower M/B ratio, is a relatively small firm, has decreased investment opportunities, inventory or sales growth, and has increased cash holding or tangibility, it is more likely to exit the CP market. Upon exiting, it is likely to resort to its cash holding, private placement bonds or acquisition notes. For a firm with a non-prime rating upon exiting, it is likely to make changes in many areas of its debt structures. Finally, evidence is found that for firms exiting the CP market, the cost of their drawn down loan commitment is significantly increased. The second essay, China's Delisting Rule and Its Impact on Listed Companies, studies whether Chinese loss firms take earnings management measures to improve their accounting performance after China's 1998 accounting-based regulation on firm delisting. I use the delisting rule as identification strategy and apply Regression Discontinuity Design (RDD) to examine whether loss reversed firms resort to accrual manipulation, real activity manipulation or other methods of earnings management in order to reverse their loss. My result consistently shows that firms that are just able to reverse loss in the third year use less non-operating net income and this result is mainly driven by firms that have the least amount of loss in the second year. The third essay, Soft Information and Internal Credit Ratings of Bank Loans, answers whether soft information plays an important role in a bank's internal credit ratings and if it does, whether it leads to a "better" or "worse" prediction of the borrowing firm's future financial health through an empirical study in the Chinese banking industry. Understanding how banks' internal ratings work is important both for us to understand banks' lending and corporations' financing behavior, and for assisting banks' transition to more complicated risk management system and assisting bank regulators for their bank regulations decisions. Results from this research show that soft information indeed affects internal ratings. Furthermore, soft information contributes positively to a bank's prediction of a firm's loan performance and future financial health. This paper contributes to the literature by examining the evolution of internal ratings and by relating internal ratings to the real outcomes of loans.
Issue Date:2016-07-11
Rights Information:Copyright 2016 by Xiangyi Xie Spencer. All rights reserved.
Date Available in IDEALS:2016-11-10
Date Deposited:2016-08

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