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Is there a difference between solicited and unsolicited bank ratings and if so, why ?

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Author Info
Patrick Van Roy () (National Bank of Belgium, Department of International Cooperation and Financial Stability)

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Abstract

This paper analyses the effect of soliciting a rating on the rating outcome of banks. Using a sample of Asian banks rated by Fitch Ratings ("Fitch"), I find evidence that unsolicited ratings tend to be lower than solicited ones, after accounting for differences in observed bank characteristics. This downward bias does not seem to be explained by the fact that betterquality banks selfselect into the solicited group. Rather, unsolicited ratings appear to be lower because they are based on public information. As a result, they tend to be more conservative than solicited ratings, which incorporate both public and nonpublic information.

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File URL: http://www.nbb.be/doc/oc/repec/reswpp/WP79.pdf
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Publisher Info
Paper provided by National Bank of Belgium in its series Research series with number 200603-1.

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Length: 43 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:nbb:reswpp:200603-1

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Related research
Keywords: Credit rating agencies; Unsolicited ratings; Selfselection; Public disclosure; Accounting transparency;

Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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References listed on IDEAS
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  1. Allen N. Berger & Sally M. Davies & Mark J. Flannery, 2000. "Comparing market and supervisory assessments of bank performance: who knows what when?," Proceedings, Federal Reserve Bank of Cleveland, pages 641-670.
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  2. Jorion, Philippe & Liu, Zhu & Shi, Charles, 2005. "Informational effects of regulation FD: evidence from rating agencies," Journal of Financial Economics, Elsevier, vol. 76(2), pages 309-330, May. [Downloadable!] (restricted)
  3. H. Kent Baker & Sattar A. Mansi, 2002. "Assessing Credit Rating Agencies by Bond Issuers and Institutional Investors," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 29(9&10), pages 1367-1398. [Downloadable!] (restricted)
  4. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  5. Yu, Fan, 2005. "Accounting transparency and the term structure of credit spreads," Journal of Financial Economics, Elsevier, vol. 75(1), pages 53-84, January. [Downloadable!] (restricted)
  6. Jason Abrevaya & Jerry A. Hausman, 1999. "Semiparametric Estimation with Mismeasured Dependent Variables: An Application to Duration Models for Unemployment Spells," Annales d'Economie et de Statistique, ADRES, issue 55-56, pages 10, Juillet-D. [Downloadable!]
  7. Cantor, Richard & Packer, Frank, 1997. "Differences of opinion and selection bias in the credit rating industry," Journal of Banking & Finance, Elsevier, vol. 21(10), pages 1395-1417, October. [Downloadable!] (restricted)
  8. Baek, Jae-Seung & Kang, Jun-Koo & Suh Park, Kyung, 2004. "Corporate governance and firm value: evidence from the Korean financial crisis," Journal of Financial Economics, Elsevier, vol. 71(2), pages 265-313, February. [Downloadable!] (restricted)
  9. Flannery, Mark J. & Kwan, Simon H. & Nimalendran, M., 2004. "Market evidence on the opaqueness of banking firms' assets," Journal of Financial Economics, Elsevier, vol. 71(3), pages 419-460, March. [Downloadable!] (restricted)
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  10. Donald P. Morgan & Kevin J. Stiroh, 2000. "Bond market discipline of banks," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 494-526.
  11. Lawrence J. White, 2001. "The Credit Rating Industry: An Industrial Organization Analysis," Working Papers 01-02, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  12. Mitton, Todd, 2002. "A cross-firm analysis of the impact of corporate governance on the East Asian financial crisis," Journal of Financial Economics, Elsevier, vol. 64(2), pages 215-241, May. [Downloadable!] (restricted)
  13. DeYoung, Robert, et al, 2001. "The Information Content of Bank Exam Ratings and Subordinated Debt Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 900-925, November.
  14. Donald P. Morgan, 2002. "Rating Banks: Risk and Uncertainty in an Opaque Industry," American Economic Review, American Economic Association, vol. 92(4), pages 874-888, September. [Downloadable!]
  15. Poon, Winnie P. H., 2003. "Are unsolicited credit ratings biased downward?," Journal of Banking & Finance, Elsevier, vol. 27(4), pages 593-614, April. [Downloadable!] (restricted)
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