Online from: 1977
Subject Area: Accounting and Finance
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|Title:||Lead bank quality and adverse rating announcements|
|Author(s):||Wei-Huei Hsu, (School of Economics and Finance, Massey University, Wellington, New Zealand), Abdullah Mamun, (University of Saskatchewan, Saskatoon, Canada), Lawrence C. Rose, (College of Business, Massey University, Auckland, New Zealand)|
|Citation:||Wei-Huei Hsu, Abdullah Mamun, Lawrence C. Rose, (2010) "Lead bank quality and adverse rating announcements", Studies in Economics and Finance, Vol. 27 Iss: 4, pp.340 - 357|
|Keywords:||Banking, Banks, Credit rating, Quality|
|Article type:||Research paper|
|DOI:||10.1108/10867371011085165 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
Purpose – This paper seeks to examine whether the market values the monitoring activity undertaken by a quality bank in the presence of a credit rating agency. Specifically, the question is asked whether the quality of a lead lending bank influences a market reaction to adverse rating announcements concerning its borrowers.
Design/methodology/approach – The event study methodology and various bank quality proxies (size, growth rate in assets, profitability, capital ratio, bank's credit rating, and ownership) are used to examine the market reaction when a borrower's bank loan rating is placed with negative implication or is downgraded.
Findings – Firms which are certified and monitored by high-quality banks are less susceptible to negative market reactions when adverse rating announcements are made.
Originality/value – The findings indicate high-quality lending banks sustain investors' confidence in their borrowers in the face of deteriorating news. The paper argues that investors and borrowers value monitoring from a high-quality bank, which is an implication of a bank having access to private information about its borrowers.
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