The text contains a 'Comparative Analysis of Internal and External Credit Ratings'. It compares and explains both concept, and concludes what impact both have on the Mid-Market Companies in Germany.
In 2012, mid-market companies (KMU) based in Germany generated revenues of 2,149.0 billion Euros. They are responsible for 35,3% of all revenues generated in Germany. These mid-market companies employed 15.97 million people, a workforce of 59,6% of all employees in Germany (IFM Bonn, 2014). Clearly, mid-market companies are elementary for the German economy. To continue to be a primary motor of the economy, they need sufficient funding. Nevertheless, financing for mid-market companies in Germany will become more difficult. Standard & Poor’s Ratings Services (2015, pp. 2-3) estimated that European mid-market companies are going to have difficulties to meet their financing needs, as banks reduce their lending to the mid-market sector as consequence of stricter regulations. Especially, smaller mid-market companies face problems to access credit loans (Standard & Poor's Financial Services LLC, 2014, p. 3). The reason for these difficulties is the implementation of Basel III. Financial institutions have to deleverage their business during the next years (Zainzinger, 2013). The problem is that mid-market companies traditionally relied on bank funding. Especially German mid-market companies relied on credit loans from financial institutions (Huber & Simmert, 2007, p. 167-196). The new regulations for deleveraging create a “scarcity of finance for European companies”; it will generate an acute financing problem for mid-market companies (Dimitrijevic & Wade, 2014, pp. 1-2). In 2013, the German mid-market financing gap already amounted to 38,9 billion Euros (KfW, 2014, p. 7). Therefore, these companies have to find new funding sources. They have to find solutions to improve the access to external financing. Credit ratings provide an opportunity to help in this process.
The existence of credit ratings is widely known. They often appear in several newspapers, and magazines (Handelsblatt, 2014). Nevertheless, various mid-market companies cannot estimate the impact and importance of credit ratings. Specifically, differences between internal credit and external ratings are often unclear. [...]
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Problem Definition and Objectives
- Course of the Investigation
- Credit Ratings
- Definition of Credit Ratings
- Function of Credit Ratings
- Development of Credit Ratings
- External Credit Ratings
- Producer of External Credit Ratings - Credit Rating Agencies
- Regulations of External Credit Ratings
- General Credit Rating Process
- Credit Rating Process for a Mid-Market Company at Standard & Poor's
- Methodology of Mid-Market Company Evaluation
- User of External Credit Ratings
- Criticism of External Credit Ratings
- Internal Credit Ratings
- Producer of Internal Credit Ratings - Financial Institutions
- Regulations for Financial Institutions
- Basel I
- Basel II
- Basel III
- Rating Process of Internal Credit Ratings of Mid-Market Companies
- Analysis of Quantitative Factors
- Analysis of Qualitative Factors
- Adjustment of Internal Credit Ratings
- Other Influencing Factors
- Use of Internal Credit Ratings
- Credit Decision
- Costs of Debt
- Problems of Internal Credit Ratings and Their Assessment
- A Comparative Analysis of Internal and External Credit Ratings
- Motivation of Credit Ratings
- Use, Risks, and Transparency of Credit Ratings
- Cost of Credit Ratings
- Assessment of Credit Ratings
- Accuracy of Credit Rating Assessment
- Impact of Credit Ratings for Mid-Market Companies in Germany
- Definition and Situation of Mid-Market Companies in Germany
- Necessity of External Financing for Mid-Market Companies in Germany
- Risks of External Credit Ratings for Mid-Market Companies in Germany
- Opportunities of External Credit Ratings for Mid-Market Companies in Germany
- Requirements for Positive Credit Ratings for Mid-Market Companies in Germany
- Conclusion
- Key Differences and Similarities of Internal and External Credit Ratings for Mid-Market Companies
- Key Factors for Mid-Market Companies in Germany
- Further Scientific Research
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This thesis aims to conduct a comparative analysis of internal and external credit ratings, specifically focusing on their impact on mid-market companies in Germany. The study explores the methodologies, regulations, and implications of both types of ratings, examining their strengths, weaknesses, and potential biases.
- The role of credit ratings in the financial system and their impact on the access to capital for mid-market companies.
- The methodologies and regulations governing both internal and external credit ratings, highlighting the differences and similarities between the two.
- The key factors influencing the accuracy and reliability of credit ratings, including the assessment of financial and non-financial information.
- The risks and opportunities associated with credit ratings for mid-market companies, considering their specific characteristics and needs.
- The implications of credit ratings for the German mid-market sector, analyzing the impact on financing decisions, investment strategies, and overall economic development.
Zusammenfassung der Kapitel (Chapter Summaries)
The first chapter introduces the research topic, defining the problem and outlining the objectives of the thesis. It provides a brief overview of the importance of credit ratings in the financial system and their significance for mid-market companies in Germany.
Chapter two presents a comprehensive definition of credit ratings, explaining their function and historical development. It explores the different types of credit ratings and their role in information intermediation.
Chapter three focuses on external credit ratings, examining the role of credit rating agencies and the regulations governing their activities. It delves into the methodology used by Standard & Poor's for assessing mid-market companies, highlighting the key criteria and factors considered. Additionally, it discusses the use and criticism of external credit ratings.
Chapter four analyzes internal credit ratings, exploring the role of financial institutions and the regulatory frameworks governing their internal rating processes. It examines the methodologies used for assessing mid-market companies, including the analysis of quantitative and qualitative factors. The chapter also discusses the use and potential problems associated with internal credit ratings.
Chapter five conducts a comparative analysis of internal and external credit ratings, examining their similarities and differences in terms of motivation, use, risks, transparency, cost, and accuracy. It discusses the challenges and limitations of both types of ratings, emphasizing the need for a comprehensive approach to risk assessment.
Chapter six explores the specific impact of credit ratings on mid-market companies in Germany. It defines the characteristics of the German mid-market sector, analyzes the need for external financing, and discusses the risks and opportunities associated with credit ratings for this segment. It also examines the requirements for achieving positive credit ratings in the German context.
Schlüsselwörter (Keywords)
This thesis focuses on the following keywords: credit ratings, internal credit ratings, external credit ratings, mid-market companies, Germany, financial system, access to capital, risk assessment, regulatory frameworks, Basel Accords, information intermediation, financial institutions, credit rating agencies, methodology, accuracy, reliability, risks, opportunities, financing decisions, investment strategies, economic development.
- Quote paper
- Kevin Elsäßer (Author), 2015, A Comparative Analysis of Internal and External Credit Ratings, Munich, GRIN Verlag, https://www.grin.com/document/333723
