Are unsolicited credit ratings lower? International evidence from bank ratings

Pui Han, Winnie POON, Michael Arthur FIRTH

    Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

    50 Citations (Scopus)

    Abstract

    In recent years credit rating agencies have started rating firms who have not asked for a rating. Recipients of unsolicited ratings argue that the assigned ratings are too low and reflect a lack of comprehensive knowledge of the rated firms. We set out to examine these claims using a comprehensive and international sample of 1,060 bank ratings. Our results show that there is a significant difference in the distributions of ratings, and the shadow group has lower ratings. The results also indicate that banks that received shadow ratings are smaller and have weaker financial profiles than banks that have other ratings. This explains, in part, the lower ratings. In addition, we develop a model to explain bank ratings. The two-step treatment effects model shows that bank size, profitability, asset quality, liquidity, and sovereign credit risk are important factors in determining bank ratings.
    Original languageEnglish
    Pages (from-to)1741-1771
    Number of pages31
    JournalJournal of Business Finance and Accounting
    Volume32
    Issue number9-10
    DOIs
    Publication statusPublished - 1 Nov 2005

    Fingerprint

    Rating
    Credit rating
    Assets
    Treatment effects
    Factors
    Liquidity
    Bank size
    Credit risk
    Credit rating agencies
    Profitability

    Keywords

    • bank ratings
    • rating determinants
    • unsolicited bank ratings

    Cite this

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    title = "Are unsolicited credit ratings lower? International evidence from bank ratings",
    abstract = "In recent years credit rating agencies have started rating firms who have not asked for a rating. Recipients of unsolicited ratings argue that the assigned ratings are too low and reflect a lack of comprehensive knowledge of the rated firms. We set out to examine these claims using a comprehensive and international sample of 1,060 bank ratings. Our results show that there is a significant difference in the distributions of ratings, and the shadow group has lower ratings. The results also indicate that banks that received shadow ratings are smaller and have weaker financial profiles than banks that have other ratings. This explains, in part, the lower ratings. In addition, we develop a model to explain bank ratings. The two-step treatment effects model shows that bank size, profitability, asset quality, liquidity, and sovereign credit risk are important factors in determining bank ratings.",
    keywords = "bank ratings, rating determinants, unsolicited bank ratings",
    author = "POON, {Pui Han, Winnie} and FIRTH, {Michael Arthur}",
    year = "2005",
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    Are unsolicited credit ratings lower? International evidence from bank ratings. / POON, Pui Han, Winnie; FIRTH, Michael Arthur.

    In: Journal of Business Finance and Accounting, Vol. 32, No. 9-10, 01.11.2005, p. 1741-1771.

    Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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    T1 - Are unsolicited credit ratings lower? International evidence from bank ratings

    AU - POON, Pui Han, Winnie

    AU - FIRTH, Michael Arthur

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    N2 - In recent years credit rating agencies have started rating firms who have not asked for a rating. Recipients of unsolicited ratings argue that the assigned ratings are too low and reflect a lack of comprehensive knowledge of the rated firms. We set out to examine these claims using a comprehensive and international sample of 1,060 bank ratings. Our results show that there is a significant difference in the distributions of ratings, and the shadow group has lower ratings. The results also indicate that banks that received shadow ratings are smaller and have weaker financial profiles than banks that have other ratings. This explains, in part, the lower ratings. In addition, we develop a model to explain bank ratings. The two-step treatment effects model shows that bank size, profitability, asset quality, liquidity, and sovereign credit risk are important factors in determining bank ratings.

    AB - In recent years credit rating agencies have started rating firms who have not asked for a rating. Recipients of unsolicited ratings argue that the assigned ratings are too low and reflect a lack of comprehensive knowledge of the rated firms. We set out to examine these claims using a comprehensive and international sample of 1,060 bank ratings. Our results show that there is a significant difference in the distributions of ratings, and the shadow group has lower ratings. The results also indicate that banks that received shadow ratings are smaller and have weaker financial profiles than banks that have other ratings. This explains, in part, the lower ratings. In addition, we develop a model to explain bank ratings. The two-step treatment effects model shows that bank size, profitability, asset quality, liquidity, and sovereign credit risk are important factors in determining bank ratings.

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    KW - rating determinants

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