A firm’s current leverage ratio is one of the core characteristics of credit quality used in statistical default prediction models. Based on the capital structure literature, which shows that leverage is mean-reverting to a target leverage, we forecast future leverage ratios and include them...

Recent studies suggest that the correlation of stock returns increases with decreasing geographical distance. However, there is some debate on the appropriate methodology for measuring the effects of distance on correlation. We modify a regression approach suggested in the literature and...

This paper examines whether the stock price of the rating agency Moody’s reacts negatively to rating actions that could indicate low rating quality. The reaction to rating reversals, which Moody’s describes as particularly damaging to investors, is economically significant. It suggests that...

Rating agencies claim to look through the cycle when assigning corporate credit ratings, which entails that they are able to separate trend components of default risk from transitory ones. To test whether agencies possess this competence, I take market-based estimates of 1-year default...