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Asymmetric benchmarking in bank credit rating

  • Shen, Chung-Hua


    (Department of Finance, National Taiwan University)

  • Huang , Yu-Li

    (Department of Insurance and Financial Management, Takming University of Science and Technology)

  • Hasan , Iftekhar


    (Fordham University & Bank of Finland)

This study proposes an information asymmetry hypothesis to examine why bank credit ratings vary among countries even when bank financial ratios remain constant. Countries are divided among those with low and high information asymmetry. The former include high-income countries, those in North America and West Europe regions, and those with strong institutional environment quality, whereas the latter group possess the opposite characteristics. This study hypothesizes that the influences of financial ratios on ratings are enhanced in low information asymmetry countries but reduced in countries with high information asymmetry. The sample includes the long-term credit ratings issued by Standard and Poor’s from 86 countries during 2002–2008. The estimated results show that the effects of financial ratios on ratings are significantly affected by information asymmetries. Countries wishing to improve the credit ratings of their banks thus should reduce information asymmetry.

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Paper provided by Bank of Finland in its series Research Discussion Papers with number 13/2012.

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Length: 40 pages
Date of creation: 12 Apr 2012
Date of revision:
Handle: RePEc:hhs:bofrdp:2012_013
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
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