Credit Rating Agencies and Bank Performance in Emerging Economies: The Effects of Credit Rating, Bank Regulation and Investor Protection Quality

Abstract

This research examines the impacts of Credit Rating Agencies (CRAs) on bank performance in general, and in particular how their impacts can be moderated by bank regulation strictness and investor protection quality embedded in different institutional environments. Using 2398 observations from 389 banks in 11 South-East Asian countries during the period 2000-2012, we find CRAs enhances bank performance. CRAs as the flexible governance power, their positive monitoring impacts are further enhanced by the quality of investor protection but mitigated by the inflexible and strict bank regulations. Our analysis enhances our understanding of CRAs governance properties in general and in particular the overall benefits and costs of the bundle of monitoring and discipline system related to CRAs, bank regulations and investor protections in the unique banking industry from emerging economies.

Keywords: Credit Ratings, Bank Regulation, Investor Protection, Bank Performance, Emerging Markets, South-East Asian

JEL Classification: G00, G10, G18, G21