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Yat Keung Lee

Diplômé DBA - 2017

Titre de thèse

Ratings quality of credit rating agency : the development of a user-based assessment model

Superviseur(s)

Ka Kei Kenneth Kwong

Adam Lee Yat Keung holds a BA (Middlesex) and an MBA (Executive, City University). He has been working in the financial industry for over 18 years and is now a head managing director of Greater China institutional sales at Kingsway Financial Services Group Limited. He is experienced in initial public offerings, placement, and right issues. He is a veteran of corporate finance, and his DBA research  contributes much to the knowledge of issuers and investors about the criteria to judge the rating quality
of credit rating agencies.

Purpose The purpose of this study is to specify the domain and identify the factor structure of ratings quality (RTQ) from a user perspective. It enriches the contents of this abstract concept, which is often heard but is seldom researched. It represents a departure from the traditional research on credit ratings creation and assignment. This study addresses the user’s requirement and expectation on ratings quality and effects of ratings quality on reputation & authority of credit rating agency.Design/Methodology/Approach A two-stage questionnaire survey was administered to a group of issuers and investors based in the two premier financial centers at China. They represent both the seller and buyer sides of the RMB-denominated bonds. A total of 362 valid responses (125 bond issuers and 237 institutional investors) were received from Shanghai and Hong Kong bond markets constituting a combined response rate of 45%.Findings Using a structural equation modeling technique, a parsimonious model is developed to operationalize RTQ in three related but independent dimensions that contain 16 items. RTQ is realized through impartiality & governance, technical capabilities & expertise and credit ratings system & assurance. Credit rating agency can earn its reputation and establishes its authority in the rating industry along these dimensions. Research Limitations/Implications This study sheds light on the user requirement towards ratings quality and reputation & authority of credit rating agency. A user-based assessment model is developed and built on the previous research works that further specifies the domain of RTQ. To its end, RTQ is measurable. However, readers are reminded that results and findings of this study account only for the user views. Other stakeholders such as government and regulatory representatives are not included. Practical Implications From a user perspective, this study promotes a consensus among issuers and investors of what constitutes RTQ. Credit rating agency can monitor and seek improvements of its perceived ratings quality via this user-based assessment model. To its end, RTQ is manageable.Originality/Value This study is among the first of its kind to research the domain and structure of RTQ using a sample from bond markets in China. It successfully establishes a three-factor model of RTQ that reflects the multidimensional nature of this construct. It paves way for more and further research on RTQ in China as well as other parts of the world.Keywords Ratings quality, Impartiality & governance, Technical capability & expertise, Credit ratings system & assurance, Reputation & authority