International Bank Flows to Emerging Markets: Influence of Sovereign Credit Ratings and Their Regional Spillover Effects

46 Pages Posted: 2 May 2010 Last revised: 3 Oct 2013

See all articles by Suk-Joong Kim

Suk-Joong Kim

The University of Sydney Business School

Eliza Wu

The University of Sydney - Business School; Financial Research Network (FIRN)

Date Written: April 20, 2010

Abstract

We examine whether changes in sovereign credit ratings assessments provided by rating agencies help to determine international bank flows to emerging countries. We focus on the quarterly banking flows of G7 countries to a sample of 55 emerging market borrowers for the period 1995-2008. We find strong evidence indicating that sovereign credit rating revisions have significantly positive influences on international bank flows from developed markets even after extensively controlling for other determinants. In addition, we find strong regional rating spillover effects. In general, ratings improvements in one emerging market region reduces bank flows to the other regions. However, there is evidence of positive ratings spillover effects from Asia Pacific to Eastern Europe. Our findings have important implications for financial institutions management with renewed efforts to strengthen the international banking system.

Keywords: Emerging Markets, Credit Ratings, Ratings Spillover, International Banking, Sovereign Risk

JEL Classification: E44, E65, F33, F34, G15

Suggested Citation

Kim, Suk-Joong and Wu, Eliza, International Bank Flows to Emerging Markets: Influence of Sovereign Credit Ratings and Their Regional Spillover Effects (April 20, 2010). Journal of Financial Research, 34 (2), pp. 331-364, Available at SSRN: https://ssrn.com/abstract=1598908

Suk-Joong Kim (Contact Author)

The University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia
+61 2 9114 0940 (Phone)
+61 2 9351 6461 (Fax)

Eliza Wu

The University of Sydney - Business School ( email )

University of Sydney
Darlington
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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