Title

Are unsolicited credit ratings lower? International evidence from bank ratings

Document Type

Journal article

Source Publication

Journal of Business Finance & Accounting

Publication Date

11-2005

Volume

32

Issue

9-10

First Page

1741

Last Page

1771

Keywords

unsolicited bank ratings, bank ratings, rating determinants

Abstract

In recent years credit rating agencies have started rating firms who have not asked for a rating. Recipients of unsolicited ratings argue that the assigned ratings are too low and reflect a lack of comprehensive knowledge of the rated firms. We set out to examine these claims using a comprehensive and international sample of 1,060 bank ratings. Our results show that there is a significant difference in the distributions of ratings, and the shadow group has lower ratings. The results also indicate that banks that received shadow ratings are smaller and have weaker financial profiles than banks that have other ratings. This explains, in part, the lower ratings. In addition, we develop a model to explain bank ratings. The two-step treatment effects model shows that bank size, profitability, asset quality, liquidity, and sovereign credit risk are important factors in determining bank ratings.

DOI

10.1111/j.0306-686X.2005.00646.x

Print ISSN

14685957

Publisher Statement

Copyright © Blackwell Publishing Ltd. 2005

Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Poon, W. P. H., & Firth, M. (2005). Are unsolicited credit ratings lower? International evidence from bank ratings. Journal of Business Finance & Accounting, 32(9-10), 1741–1771. doi: 10.1111/j.0306-686X.2005.00646.x