151 2lo)g, iwt emfoodlleolw: Blume et al. (1998) and Alp (2013) and apply the following ordered where Rit denotes the credit rating of security i in issuance year t. αt is the intercept for year t, β is the vector of slope coefficients, and Zit is a latent variable that relates to Rit in the ranges between different partition points µi. Rit ranges from 1 to maximum 20. The matrix Xit denotes columns with explanatory variables including Tranche Count, Subordination Level, Number of Ratings, Log Tranche Value, Log Transaction Value, Top Ten Issuer, and Coupon. The variable definitions are described in Section 4.3. The coefficient values in ordered logit models are reported in units of latent variables and consequently not economically relevant as the year indicator coefficient at is not in the same unit as Zit. We follow Alp (2013) and Liu and Wang (2019) to convert at into the unit of rating notch, that iles,ntghteh aisvecaralcgueladtiesdtafnocreeabcehtwCeReAn stehpeapraatretliyti. on points. The average rating notch 48 Third, in our final set of tests, we compare all tranches that received at least a rating of a large and a small CRA to test whether issuer size is related to better 48 For example, Moody’s provide credit ratings in our sample that range from 1(AAA) to 19(Caa3). The average rating notch length for Moody’s will be calculated as (μ19 - μ1)/18= 0.63. Chapter 4 - Intensified Competition and the Impact on Credit Ratings
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