Research Discussion Papers, Bank of Finland
No 13/2012:
Asymmetric benchmarking in bank credit rating
Chung-Hua Shen ()
, Yu-Li Huang and Iftekhar Hasan ()
Abstract: This study proposes an information asymmetry hypothesis to
examine why bank credit ratings vary among countries even when bank
financial ratios remain constant. Countries are divided among those with
low and high information asymmetry. The former include high-income
countries, those in North America and West Europe regions, and those with
strong institutional environment quality, whereas the latter group possess
the opposite characteristics. This study hypothesizes that the influences
of financial ratios on ratings are enhanced in low information asymmetry
countries but reduced in countries with high information asymmetry. The
sample includes the long-term credit ratings issued by Standard and Poor’s
from 86 countries during 2002–2008. The estimated results show that the
effects of financial ratios on ratings are significantly affected by
information asymmetries. Countries wishing to improve the credit ratings of
their banks thus should reduce information asymmetry.
Keywords: bank rating; financial ratio; information asymmetry; institutional quality; (follow links to similar papers)
JEL-Codes: G21; G32; G38; (follow links to similar papers)
40 pages, April 12, 2012
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