Essays on Credit Risk, Information Environment and Uncertainty

Chapter 1 discusses the investors’ reactions to events due to economic policy uncertainty, and changes in the regulatory environment. Using the financial market players’ actions such as governments’ during an uncertain environment and firms’ information environment including financial and non-financial disclosures, this thesis makes an introduction to investors’ stance on main uncertainty periods and regulatory changes. In Chapter 2, I examine the investors’ confidence in the UK government’s actions to achieve its Brexit goal. Using an objective approach where I employ main Brexit events (the UK Referendum vote on June 23, 2016, Triggering of Article 50 on March 29, 2017, Brexit day on January 2020, etc.), I investigate the investors’ perception of the UK government actions to achieve its Brexit goal. This chapter tries to find out whether the UK government’s actions are taken for granted by the investors to complete its Brexit goal. Chapter 3 shows that the bank opacity provides sufficient information about the banks’ credit risk under a supervision change of Single Supervisory Mechanism (SSM). In this context, I break down credit risk into its factors of default and information risk, then focus on the effect of bank opacity (i.e., information risk) on the pricing of a credit risk after the introduction of SSM. In Chapter 4, I examine the effect of banks’ information environment due to their non-financial disclosures (sustainability disclosures) on their creditworthiness, in particular, using ESG scores, on the pricing of CDS spreads. In this chapter, I focus on ESG scores, particularly ESG governance pillars, to investigate investors’ trust in banks after the European debt crisis by assessing the link between credit risk and ESG scores. In Chapter 5, I examine the nexus between ESG activities and credit risk of non-financial firms after the Covid-19 crisis. This chapter questions whether improvement in ESG scores is beneficial for non-financial firms to decrease their credit risk, i.e., increasing their creditworthiness. Chapter 6 concludes this thesis by highlighting significant remarks, limitations, and avenues for future research.