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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Bank standalone credit ratings
Organization Unit
Authors
  • Steven Ongena
  • Michael R. King
  • Nikola Tarashev
Language
  • English
Institution University of Zurich
Series Name BIS Working Paper
Number 542
Date 2020
Abstract Text We study a unique experiment to examine the importance of rating agencies' private information for bank shareholders. On July 20, 2011, Fitch Ratings refined their bank standalone ratings, which measure intrinsic financial strength, from a 9-point to a 21-point scale. This refinement did not affect their all-in ratings, which combine assessments of intrinsic strength and extraordinary sovereign support and provide an estimate of banks' creditworthiness. Thus, the impact of the standalone rating refinement was cleanly limited to bank shareholders. We find evidence suggesting that the refinement resulted in higher than expected standalone ratings, but we find only weak evidence of ratings catering. We also find a positive relationship between stock price reactions and rating surprises, revealing that the rating refinement delivered useful information about the importance of bank characteristics for assessing intrinsic financial strength.
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Official URL https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2725958
Other Identification Number merlin-id:17748
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