Asymmetric Benchmarking in Bank Credit Rating

43 Pages Posted: 19 Apr 2012

See all articles by Chung-Hua Shen

Chung-Hua Shen

National Taiwan University - Department of Finance

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Yu-Li Huang

Takming University of Science and Technology

Date Written: April 12, 2012

Abstract

This study proposes an information asymmetry hypothesis to examine why bank credit ratings vary among countries even when bank financial ratios remain constant. Countries are divided among those with low and high information asymmetry. The former include high-income countries, those in North America and West Europe regions, and those with strong institutional environment quality, whereas the latter group possess the opposite characteristics. This study hypothesizes that the influences of financial ratios on ratings are enhanced in low information asymmetry countries but reduced in countries with high information asymmetry. The sample includes the long-term credit ratings issued by Standard and Poor’s from 86 countries during 2002–2008. The estimated results show that the effects of financial ratios on ratings are significantly affected by information asymmetries. Countries wishing to improve the credit ratings of their banks thus should reduce information asymmetry.

Keywords: bank rating, financial ratio, information asymmetry, institutional quality

JEL Classification: G21, G32, G38

Suggested Citation

Shen, Chung-Hua and Hasan, Iftekhar and Huang, Yu-Li, Asymmetric Benchmarking in Bank Credit Rating (April 12, 2012). Bank of Finland Research Discussion Paper No. 13/2012, Available at SSRN: https://ssrn.com/abstract=2041871 or http://dx.doi.org/10.2139/ssrn.2041871

Chung-Hua Shen

National Taiwan University - Department of Finance ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

Iftekhar Hasan (Contact Author)

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Yu-Li Huang

Takming University of Science and Technology ( email )

56, Sec 1, Huan Shan Rd.
Nei Hu Dist.
Taipei City
Taiwan

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