Do Solicitations Matter in Bank Credit Ratings? Results from a Study of 72 Countries

Authors


  • Poon acknowledges a research grant from the Research and Postgraduate Studies Committee of Lingnan University, Hong Kong. The authors thank Chung-Lam Chan for his research assistance. We are grateful to Mark J. Flannery and two anonymous referees for their helpful suggestions and comments. Any remaining errors are ours.

Abstract

Would the credit ratings of unsolicited banks be higher if they were solicited? Alternatively, would the credit ratings of solicited banks would be lower if they were unsolicited? To answer these questions, we use an endogenous regime-switching model and data from 460 commercial banks in 72 countries, excluding the United States, for the period 1998–2003. The answer to both questions is yes. Our results show that the observed differences between solicited and unsolicited ratings can be explained by both the solicitation status and financial profile of the banks. This finding is a new contribution to the literature.

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