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The impact of bank regulations, supervision, market structure, and bank characteristics on individual bank ratings: A cross-country analysis

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  • Fotios Pasiouras
  • Chrysovalantis Gaganis
  • Constantin Zopounidis

    ()

Abstract

We use country level data and bank level data from 71 countries and 857 banks to investigate the impact of bank regulations, supervision, market structure, and bank characteristics on individual bank ratings. The results indicate that less cost efficient banks, with higher than average levels of provisions relatively to their income, and lower liquidity tend to have lower ratings. Larger and more profitable banks tend to obtain higher ratings. Higher equity to assets ratio results in higher ratings only when we do not control for bank supervision and regulations. Capital requirements, restrictions on bank activities, official disciplinary power, explicit deposit insurance scheme, higher deposit insurer power, liquidity and diversification guidelines, entry requirements, fraction of entries denied, and economic freedom have a significant impact on ratings in all of our specifications. Disclosure requirements and foreign banks entry have a significant impact on ratings only when we simultaneously control for the regulatory environment and the market structure, while auditing requirements have a significant impact only when we control for the regulatory environment alone. Finally, banks in developed countries are assigned higher ratings. However, this impact disappears when we include the regulatory and supervision variables in the models. Copyright Springer Science + Business Media, LLC 2006

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Bibliographic Info

Article provided by Springer in its journal Review of Quantitative Finance and Accounting.

Volume (Year): 27 (2006)
Issue (Month): 4 (December)
Pages: 403-438

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Handle: RePEc:kap:rqfnac:v:27:y:2006:i:4:p:403-438

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Web page: http://springerlink.metapress.com/link.asp?id=102990

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Keywords: Banks; Ratings; Regulations; Supervision;

References

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Cited by:
  1. Delis, Manthos D & Kouretas, Georgios, 2010. "Interest rates and bank risk-taking," MPRA Paper 20132, University Library of Munich, Germany.
  2. Chuling Chen, 2009. "Bank Efficiency in Sub-Saharan African Middle Income Countries," IMF Working Papers 09/14, International Monetary Fund.
  3. Jeroen Klomp & Jacob de Haan (DNB), 2010. "Banking risk and regulation: Does one size fit all?," CPB Discussion Paper 164, CPB Netherlands Bureau for Economic Policy Analysis.
  4. Delis, Manthos D & Tran, Kien & Tsionas, Efthymios, 2009. "Quantifying and explaining parameter heterogeneity in the capital regulation-bank risk nexus," MPRA Paper 18526, University Library of Munich, Germany.
  5. Fang, Yiwei & Hasan, Iftekhar & Marton, Katherin, 2014. "Institutional development and bank stability: Evidence from transition countries," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 160-176.
  6. Klomp, Jeroen & Haan, Jakob de, 2012. "Banking risk and regulation: Does one size fit all?," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3197-3212.
  7. Delis, Manthos D & Molyneux, Philip & Pasiouras, Fotios, 2009. "Regulations and productivity growth in banking," MPRA Paper 13891, University Library of Munich, Germany.
  8. Halkos, George & Tzeremes, Nickolaos, 2010. "Measuring the effect of virtual mergers on banks’ efficiency levels:A non parametric analysis," MPRA Paper 23696, University Library of Munich, Germany.
  9. Delis, Manthos D & Staikouras, Panagiotis, 2009. "On-site audits, sanctions, and bank risk-taking: An empirical overture towards a novel regulatory and supervisory philosophy," MPRA Paper 16836, University Library of Munich, Germany.
  10. Fotios Pasiouras, 2008. "International evidence on the impact of regulations and supervision on banks’ technical efficiency: an application of two-stage data envelopment analysis," Review of Quantitative Finance and Accounting, Springer, vol. 30(2), pages 187-223, February.
  11. Distinguin, Isabelle & Kouassi, Tchudjane & Tarazi, Amine, 2013. "Interbank deposits and market discipline: Evidence from Central and Eastern Europe," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 544-560.
  12. Hsing-Chin Hsiao & Mei-Hwa Lin, 2013. "Taiwan second financial restructuring and commercial bank productivity growth: M&As impact," Review of Accounting and Finance, Emerald Group Publishing, vol. 12(4), pages 327-350, September.
  13. Agoraki, Maria-Eleni & Delis, Manthos D & Pasiouras, Fotios, 2009. "Regulations, competition and bank risk-taking in transition countries," MPRA Paper 16495, University Library of Munich, Germany.
  14. Chrysovalantis Gaganis & Fotios Pasiouras & Charalambos Spathis, 2013. "Regulations and Audit Opinions: Evidence from EU Banking Institutions," Computational Economics, Society for Computational Economics, vol. 41(3), pages 387-405, March.
  15. Boudriga, Abdelkader & Boulila, Neila & Jellouli, Sana, 2009. "Does bank supervision impact nonperforming loans : cross-country determinants using agregate data ?," MPRA Paper 18068, University Library of Munich, Germany.
  16. Fatima Alali & Bikki Jaggi, 2011. "Earnings versus capital ratios management: role of bank types and SFAS 114," Review of Quantitative Finance and Accounting, Springer, vol. 36(1), pages 105-132, January.
  17. Teixeira, João C.A. & Silva, Francisco J.F. & Fernandes, Ana V. & Alves, Ana C.G., 2014. "Banks’ capital, regulation and the financial crisis," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 33-58.
  18. Angelos Kanas, 2014. "The impact of prompt corrective action on the default risk of the U.S. commercial banking sector," Review of Quantitative Finance and Accounting, Springer, vol. 43(2), pages 393-404, August.
  19. Ioannidis, Christos & Pasiouras, Fotios & Zopounidis, Constantin, 2010. "Assessing bank soundness with classification techniques," Omega, Elsevier, vol. 38(5), pages 345-357, October.

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