Predicting rating changes for banks: How accurate are accounting and stock market indicators?
AbstractWe aim to assess how accurately accounting and stock market indicators predict rating changes for Asian banks. We conduct a stepwise process to determine the optimal set of early indicators by tracing upgrades and downgrades from rating agencies, as well as other relevant factors. Our results indicate that both accounting and market indicators are useful leading indicators but are more effective in predicting upgrades than downgrades, especially for large banks. Moreover, early indicators are only significant in predicting rating changes for banks that are more focused on traditional banking activities such as deposit and loan activities. Finally, a higher reliance of banks on subordinated debt is associated with better accuracy of early indicators.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 15/2012.
Length: 34 pages
Date of creation: 12 Apr 2012
Date of revision:
bank failure; bank risk; ratings; emerging market;
Other versions of this item:
- Isabelle Distinguin & Iftekhar Hasan & Amine Tarazi, 2013. "Predicting rating changes for banks: how accurate are accounting and stock market indicators?," Annals of Finance, Springer, vol. 9(3), pages 471-500, August.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-29 (All new papers)
- NEP-BAN-2012-05-29 (Banking)
- NEP-FOR-2012-05-29 (Forecasting)
- NEP-RMG-2012-05-29 (Risk Management)
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