Journal article
Bond rating agencies and their role in bank market discipline
Journal of financial services research, v 6(3), pp 249-263
01 Sep 1992
Abstract
Considerable attention has been given to the role of market discipline in the regulation of bank risk. The asset/liability management of bank holding companies is subject to market discipline if the market prices of their uninsured securities respond to their risk-taking activity. A study examines whether changes in the ratings of bank debt have any information content. Bank holding companies are monitored both by bank regulators and by debt rating agencies, leading to the view that duplication of effort may render superfluous the monitoring service of rating agencies. However, the results show that downgrades of bank debt are associated with statistically significant wealth losses, irrespective of whether the rating change is across rating classes or within a rating class. Moreover, the results hold even when observations with potentially confounding events are removed from the sample. These results suggest that rating agencies provide valuable information to the capital market regarding the risk exposure of bank holding companies.
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31 citations in Scopus
Details
- Title
- Bond rating agencies and their role in bank market discipline
- Creators
- Robert Schweitzer - University of DelawareSamuel Szewczyk - Drexel UniversityRaj Varma - Department of Finance, Newark, USA
- Publication Details
- Journal of financial services research, v 6(3), pp 249-263
- Publisher
- Springer Nature B.V
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Finance
- Scopus ID
- 2-s2.0-21144465794
- Other Identifier
- 991019173733104721