EU Banks Rating Assignments: Is There Heterogeneity between New and Old Member Countries?
AbstractWe model EU countriesâ bank ratings using financial variables and allowing for intercept and slope heterogeneity. Our aim is to assess whether âoldâ and ânewâ EU countries are rated differently and to determine whether ânewâ ones are assigned lower ratings, ceteris paribus, than âoldâ ones. We find that country-specific factors (in the form of heterogeneous intercepts) are a crucial determinant of ratings. Whilst ânewâ EU countries typically have lower ratings than âoldâ ones, after controlling for financial variables we also discover that all countries have significantly different intercepts, confirming our prior belief. This intercept heterogeneity suggests that each countryâs rating is assigned uniquely, after controlling for differences in financial factors, which may reflect differences in country risk and the legal and regulatory framework that banks face (such as foreclosure laws). In addition, we find that ratings may respond differently to the liquidity and operating expenses to operating income variables across countries. Typically ratings are more responsive to the former and less sensitive to the latter for ânewâ EU countries compared with âoldâ EU countries.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 19 (2011)
Issue (Month): 1 (02)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576
Other versions of this item:
- Guglielmo Maria Caporale & Roman Matousek & Chris Stewart, 2010. "EU Banks Rating Assignments: Is there Heterogeneity between New and Old Member Countries?," Discussion Papers of DIW Berlin 1009, DIW Berlin, German Institute for Economic Research.
- Guglielmo Maria Caporale & Roman Matousek & Chris Stewart, 2010. "EU Banks Rating Assignments: Is there Heterogeneity between New and Old Member Countries?," CESifo Working Paper Series 3074, CESifo Group Munich.
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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