Testing for Opaqueness in the European Banking Industry: Evidence from Bond Credit Ratings

Posted: 14 Oct 2007

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Abstract

The question of whether banks are relatively more opaque than non-banking firms is empirically investigated by analyzing the disagreement between rating agencies (split ratings) on 2,473 bonds issued by European firms during the 1993-2003 period. Four main results emerge from the empirical analysis. First, fewer bank issues have split ratings overall, but the predicted probability of a split rating is higher for banks after controlling for risk and other issue characteristics. Second, subordinated bonds are subject to more disagreement between rating agencies. Third, bank opaqueness increases with financial assets and decreases with bank fixed assets. Fourth, bank opaqueness increases with bank size and capital ratio. The implications of these findings for regulatory policy are also discussed.

Keywords: Banks, Bank regulation, Bank opaqueness

JEL Classification: G20, G21, G28

Suggested Citation

Iannotta, Giuliano, Testing for Opaqueness in the European Banking Industry: Evidence from Bond Credit Ratings. Journal of Financial Services Research, Vol. 30, 2006, Available at SSRN: https://ssrn.com/abstract=1020953

Giuliano Iannotta (Contact Author)

Università Cattolica ( email )

20123 Milano
Italy

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