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The role of credit rating agencies in the financial crisis? What role does corporate social responsibility play in credit rating agencies?

The role of credit rating agencies in the financial crisis? What role does corporate social responsibility play in credit rating agencies?
Introduction First emerged in the 1900s in the United States, the credit rating business has rapidly grown and became a major part of the international financial systems followed by economic market globalization (Bayar 49). However, public authorities and investors are concerned about the reliability and accuracy of credit ratings following multiple financial crises such as the Eurozone sovereign debt crisis, the 2008 global financial crisis, and the 1997 Asian crisis and bankruptcies of corporate organisations (Bayar 49). According to a study conducted by Bayar (2014), which investigated the role played by CRAs in various financial crisis, the results indicated that it is not possible for new regulations aimed at increasing accountability and transparency to fully eliminate conflicts of interests due to the boosting market competition. On the other hand, Lugo, Croce and Faff (2015) indicated that CRAs react differently due to the stiff competition in the credit ratings even after the financial crisis. These studies indicate that the role of CRAs before and after a financial crisis not fully investigated, thus forming the basis for this study.Aim and ObjectivesAimThis study aims to investigate credit rating agencies and their roles in the financial crisis.Objectives

i.To critically analyze the corporate social responsibility activities in credit rating agencies before and after a financial crisis.ii.To determine the strategies established by credit rating agencies in the management of a financial crisis.Literature Review and Overview Several financial crises have occurred, and explorers such as Bayar (2014) are concerned with the role and impact of reactions of CRAs. According to Bayar (2014), CRAs have four major roles they must perform and they include offering a common standard for market participants referring to credit risks; improving financial markets functioning and efficiency, providing global ratings that are consistent and solving asymmetry of information existing between the investors and issuers. Similarly, White (2018) argues that CRAs should provide favourable ratings for corporate organizations. Moreover, White (2018) states that, in spite of the several critics of key CRAs, Standards & Poor’s, Moody’s and Fitch use the same financial instruments in both Europe and the U.S. On the other hand, Kiesel (2016) argues that after the global financial crisis, there has been an increased focus and assessment of the significance of CRAs. Most of the financial stakeholders agree that the CRAs could not detect the decrease in the credit quality of the issuers within the required time (Kiesel). Therefore, the role of CRAs needs to be investigated to estimate the impact of their reactions in financial markets.Research Method This study will employ a mixed research methodology by using both quantitative and qualitative data. According to McCusker and Gunaydin (2015), the selection of a suitable method is based on the nature of the study. Mixed research methods offer the researcher an opportunity to gather sufficient numerical and non-numerical

information to answer complicated research questions extensively (McCusker and Gunaydin 5). Quantitative data that will be collected and analysed in this study includes the stock market responses to changes in the ratings, credit default swaps during and after the global financial crisis from a sample of major CRAs. On the other hand, the study employs qualitative techniques to gather descriptive information about the role of CRAs, their corporate social responsibility and responses made by CRAs following the impacts of the financial crisis.Project Plan Bullet Points

i.Research proposal

ii.Design of the project timeline.

iii.Identifying the data sources

iv.Literature review chapter

v.Data collection

vi.Data analysis

vii.Conclusion.

viii.Reference

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