Determinants of Heterogeneity in European Credit Ratings

Financial Markets and Portfolio Management, Vol. 24, No. 3, 2010

Posted: 3 Sep 2010

See all articles by Kurt Hornik

Kurt Hornik

Vienna University of Economics and Business Administration - Department of Statistics and Mathematics

Rainer Jankowitsch

WU (Vienna University of Economics and Business); Vienna Graduate School of Finance (VGSF)

Manuel Lingo

Oesterreichische Nationalbank (OeNB); Vienna University of Economics and Business Administration

Stefan Pichler

WU - Vienna University of Economics and Business - Department of Finance, Accounting and Statistics; VGSF (Vienna Graduate School of Finance)

Gerhard Winkler

Oesterreichische Nationalbank (OeNB); Vienna University of Economics and Business Administration

Date Written: June 22, 2010

Abstract

In this study, we empirically analyze the determinants of heterogeneity in rating assessments across different segments of the European loan market. We conduct a benchmarking analysis using rating information on European corporate obligors from nine major Austrian banks that have a large share of foreign lending, particularly in the Central and Eastern European region. We provide evidence that, generally, overall heterogeneity among rating outcomes for foreign markets is higher than for domestic markets. Furthermore, we show that heterogeneity increases in transition economies and those markets where Austrian bank involvement is relatively low. Our evidence supports the hypothesis that heterogeneity in the assessment of credit risk is determined not only by the objective quality of information, which is deemed to be lower in transition economies, but also by the subjective access to information about obligors measured by the level of domestic bank involvement in the respective foreign market. Furthermore, we quantify potential effects on regulatory capital requirements.

Keywords: Rating heterogeneity, Benchmarking, Rating agreement, Rating association, Financial market integration, Transition economies

JEL Classification: G21, C49

Suggested Citation

Hornik, Kurt and Jankowitsch, Rainer and Lingo, Manuel and Pichler, Stefan and Winkler, Gerhard, Determinants of Heterogeneity in European Credit Ratings (June 22, 2010). Financial Markets and Portfolio Management, Vol. 24, No. 3, 2010, Available at SSRN: https://ssrn.com/abstract=1669921

Kurt Hornik

Vienna University of Economics and Business Administration - Department of Statistics and Mathematics ( email )

Vienna A-1090, Wien
Austria

Rainer Jankowitsch (Contact Author)

WU (Vienna University of Economics and Business) ( email )

Welthandelsplatz 1
Vienna, Vienna AT1020
Austria
+43 1 31 336 4340 (Phone)
+43 1 310 0580 (Fax)

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Manuel Lingo

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3
1090 Vienna
Austria

Vienna University of Economics and Business Administration

Augasse 2-6
Vienna A-1090
Austria

Stefan Pichler

WU - Vienna University of Economics and Business - Department of Finance, Accounting and Statistics ( email )

Heiligenstaedter Strasse 46-48
Wien 1190
Austria

VGSF (Vienna Graduate School of Finance) ( email )

Heiligenstaedter Strasse 46-48
Vienna, 1190
Austria

Gerhard Winkler

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3
1090 Vienna
Austria

Vienna University of Economics and Business Administration ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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