Abstract

http://ssrn.com/abstract=1350243
 
 

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The Impact of Government Ownership on Banks' Ratings: Evidence from the European Banking Industry


Giuliano Iannotta


Università Cattolica

Giacomo Nocera


Audencia Nantes School of Management

Andrea Sironi


Bocconi University - Department of Finance

February 27, 2009

CAREFIN Research Paper No. 10/08

Abstract:     
We evaluate the impact of government ownership on the issuer and individual ratings of a sample of 224 large European banks over the 1999-2004 period. Individual ratings differ from traditional ones in that they focus on banks' economic and financial conditions and do not take into account any external support from banks' owners, local or national governments, monetary authorities or other official institutions. Two main results emerge from our analysis. First, after controlling for accounting variables, government-owned banks have a better average issuer rating than privately owned ones, indicating that government-owned banks benefit from a lower cost of debt funding. Second, privately-owned banks have a lower risk of insolvency, as reflected in a better individual rating, than government-owned banks. This result, which remains even after controlling for banks' economic and financial conditions, indicates that government-owned banks benefit from a government protection mechanism in the form of explicit and/or implicit guarantees

Number of Pages in PDF File: 25

Keywords: European banking, Ownership, Market Discipline, Credit Ratings

JEL Classification: G15, G21, G28, G32

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Date posted: March 1, 2009  

Suggested Citation

Iannotta, Giuliano and Nocera, Giacomo and Sironi, Andrea, The Impact of Government Ownership on Banks' Ratings: Evidence from the European Banking Industry (February 27, 2009). CAREFIN Research Paper No. 10/08. Available at SSRN: http://ssrn.com/abstract=1350243

Contact Information

Giuliano Iannotta (Contact Author)
Università Cattolica ( email )
20123 Milano
Italy
Giacomo Nocera
Audencia Nantes School of Management ( email )
8 route de la Jonelière, BP 31222
Nantes Cedex 3, 44312
France
Andrea Sironi
Bocconi University - Department of Finance ( email )
Via Roentgen 1
Milano, MI 20136
Italy
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