Credit rating changes’ impact on banks: evidence from the US banking industry

Apergis, Nicholas and Payne, James E. and Tsoumas, Chris (2011): Credit rating changes’ impact on banks: evidence from the US banking industry.

Abstract

This study examines the impact of credit rating upgrades and downgrades on six comprehensive banks’ asset classes, profitability, leverage and size using data from the Federal Deposit Insurance Corporation’s call reports and Bloomberg over the period 1989-2008. In summary, the results suggest that a downgrade has a lasting and relatively more severe impact on banks than an upgrade; however, downgraded banks do not seem to effectively reduce their appetite for risk over a longer horizon. It seems that the role of credit rating agencies as an integral part of banks’ prudential supervision through market discipline is, in a longer horizon, overstated.

• Item Type: MPRA Paper
• Language: English
• Keywords: Credit rating changes; banks; market discipline
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C21 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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