Testing for Opaqueness in the European Banking Industry: Evidence from Bond Credit Ratings |
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Authors: | Giuliano Iannotta |
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Institution: | (1) Financial Markets and Institutions Department, Università Commerciale Luigi Bocconi, Viale Isonzo 25, 20135 Milano, Italy |
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Abstract: | The question of whether banks are relatively more opaque than non-banking firms is empirically investigated by analyzing the
disagreement between rating agencies (split ratings) on 2,473 bonds issued by European firms during the 1993–2003 period.
Four main results emerge from the empirical analysis. First, fewer bank issues have split ratings overall, but the predicted
probability of a split rating is higher for banks after controlling for risk and other issue characteristics. Second, subordinated
bonds are subject to more disagreement between rating agencies. Third, bank opaqueness increases with financial assets and
decreases with bank fixed assets. Fourth, bank opaqueness increases with bank size and capital ratio. The implications of
these findings for regulatory policy are also discussed.
All errors remain those of the author. This paper was prepared while the author was visiting the Department of Finance, Insurance
and Real Estate at the Graduate School of Business Administration, University of Florida. |
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Keywords: | European banking industry bank opaqueness bond credit ratings split ratings |
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