39 2.4.1 Credit rating and the impact on the funding cost for US and EU markets We are interested in the size of the credit rating coefficient in Equation (2.1) and tt hr aenscehceusr. i Ct yo lduems ing sn (f1a )c toofr Ts abbel ye o2n. 2d ac rneddTi tarbal tei n2g. 3s (t hP aa nt ieml s pAa catnfdu nBd) idnog nc oo st ti no cf lCuLdOe ct hoen tsrtor ul vc at ur ri aebol ef st h; ienttrhaen ssaucbtsi oenq ,uiesns ut ec ro launmdntsi mweefai xdeddceofnf etcr tosl. v a r i a b l e s r e l a t e d t o Wfinedfiarsctrpeedritforramtinogurcoanefafliycsieisntfoorfo2u7r.8fu6ll(sample (Table 2.2). In column (1) we t-stat=73.26), statistically significant adte ttehrem1i n%i n gl e vt he el . rTi hs ki s psruegmg ieusmt s . tThhaet mc rae gdni ti t ruadtei nagns dwl ee rvee l ao fs isginginf ii cf iacnatn cf ae c ot of rt hi ne credit rating coefficient remains consistent when we run our model with control variables in columns (2) to (6). In column (6), showing our model with all control variables, we find that the security design factors Trance Count, Capital Allocation, Log Tranche Size, Log Transaction Value, and Rating Discrepancy are all highly significant in determining the risk premium. It nh eT aUbSl e a2n. 3d wEeUc omn adrukcet tt. hWe sea mo besaenr va el y ssitsr ai ksi ni ng Tda bi f lfee r2e. 2n cbeust wb ei tt hw ae esnp l itthbees tewtewe no markets. First, we see in the US market a coefficient of 29.98 (t-stat=154.3), which is substantially larger than 18.95 (t-stat=29.3) for the EU market. So, on aravteirnaggseina tshuebUstSanmtaiarlklyetlathrgaenrinpothrteioEnUomf athrkeestp. read can be attributed to credit Furthermore, for the US market in comparison to the EU market, more of the sheecauvri liyt yredleysoi gnnsfeaccut or irtsy adrees isgtna t: itsht iec caol leyf fsiicgine ni fti csaonft . Fo r t h e U S m a r ke t , i nve s t o r s Capital Allocation, Transaction Value, and Tranche Count are significant at at least a 5% level of significance. Since Capital Allocation is already a key input in the CRA models in constructing a credit rating, our findings suggest that investors in the US compared to the Chapter 2 - How much do Investors Rely on Credit Ratings
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