Testing for Opaqueness in the European Banking Industry: Evidence from Bond Credit Ratings
28 Pages Posted: 18 Apr 2005
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Testing for Opaqueness in the European Banking Industry: Evidence from Bond Credit Ratings
Testing for Opaqueness in the European Banking Industry: Evidence from Bond Credit Ratings
Date Written: June 2004
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 for regulatory policy are also discussed.
Keywords: Banks, bank regulation, bank opaqueness
JEL Classification: G20, G21, G28
Suggested Citation: Suggested Citation
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