Credit Rating Changes’ Impact on Banks: Evidence from the US Banking Industry

49 Pages Posted: 2 Jul 2010 Last revised: 5 Jan 2012

See all articles by Nicholas Apergis

Nicholas Apergis

University of Piraeus; University of Derby

James E. Payne

affiliation not provided to SSRN

Chris Tsoumas

Hellenic Open University

Date Written: December 2011

Abstract

This study examines the impact of credit rating upgrades and downgrades on six comprehensive banks’ asset classes, profitability, leverage and size using data from the Federal Deposit Insurance Corporation’s call reports and Bloomberg over the period 1989-2008. In summary, the results suggest that a downgrade has a lasting and relatively more severe impact on banks than an upgrade; however, downgraded banks do not seem to effectively reduce their appetite for risk over a longer horizon. It seems that the role of credit rating agencies as an integral part of banks’ prudential supervision through market discipline is, in a longer horizon, overstated.

Keywords: Credit rating changes, banks, market discipline

JEL Classification: C21, D80, G21, G28

Suggested Citation

Apergis, Nicholas and Payne, James E. and Tsoumas, Chris, Credit Rating Changes’ Impact on Banks: Evidence from the US Banking Industry (December 2011). Available at SSRN: https://ssrn.com/abstract=1633235 or http://dx.doi.org/10.2139/ssrn.1633235

Nicholas Apergis

University of Piraeus ( email )

Karaoli and Dimitriou 80
80 KARAOLI & DIMITRIOU STREET
Piraeus, Attiki 18534
Greece

University of Derby ( email )

Kedleston Road
Derby, Derbyshire DE22 1GB
United Kingdom

James E. Payne

affiliation not provided to SSRN ( email )

No Address Available

Chris Tsoumas (Contact Author)

Hellenic Open University ( email )

Parodos Aristotelous 18
26335 Patra
Greece

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