Date of Graduation


Document Type


Degree Name

Doctor of Philosophy in Business Administration (PhD)

Degree Level





Wayne Lee

Committee Member

Pu Liu

Second Committee Member

Tim Yeager


Social sciences, Corporate governance, Credit ratings, Opacity


In the first essay, utilizing a more recent and expanded 20-year sample 1991-2010 of dual-rated bonds issued, I confirm Morgan's (2002) finding that banks are relatively more opaque than nonbanks. The likelihood of a rating split is higher, and the magnitude of the rating gap is larger, for banks than nonnbanks. Moreover, rating agency disagreements are more significant for banks with relatively higher loan and trading securities holdings and maintain lower capital, and for banks engaged in mortgage securitization. Importantly, I find that rating agency disagreements reflect market proxies of information uncertainty. Further, opacity makes external financing more costly. Equity returns surrounding new bond issues are significantly negative on average, and notably lower, when information uncertainty is higher and for banks compared to nonbanks. In the second essay I investigate how corporate governance is related to bank opacity and how bank opacity is related to systematic and systemic risk. It is well known that opaque assets lead to higher systematic risk, which contributes to higher systemic risk. Banks by nature hold a large percentage of opaque assets, but the decision to hold such assets is partly endogenous. Results show that banks with relatively weak corporate governance hold a larger share of opaque assets. Consequently, they operate further along the risk-return frontier and have higher exposure to systemic risk. At the margin, strong corporate governance at publicly traded U.S. banking organizations reduces financial instability. In the third essay I examine if the rating agencies sacrifice the rating timeliness for the sake of rating stability. Credit rating agencies argue that markets expect them to issue stable ratings. Examining equity market reactions around CreditWatch events in 2002-2005, I find that the pursuit of stable rating may have reduced the timeliness of rating changes. Abnormal equity returns of a firm prior to being listed on CreditWatch are effective predictors of the ultimate change in rating that occurs when the firm is listed. Equity markets exhibit no reaction when a firm is delisted from CreditWatch, suggesting information about the rating change is already reflected in equity prices at the time of delisting.