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Title: Credit rating divergence and the role of opacity in emerging market banks
Author: Martin Merizalde, Andrea
ISNI:       0000 0004 9347 2065
Awarding Body: Bangor University
Current Institution: Bangor University
Date of Award: 2020
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Prior credit rating literature focused on emerging economies is very limited and often country-specific, despite the significant expansion of the credit rating industry in these countries in recent years. Bank rating studies are particularly scarce, notwithstanding the pivotal role of banks as major funding providers in emerging economies. This thesis addresses these voids in the literature and investigates bank rating divergences between S&P, Moody’s and Fitch, the global rating agencies (GRAs), using a cross-country setting (11 emerging economies). Three perspectives are central to the thesis: (i) examining the drivers of national scale ratings (NSR) and global scale ratings (GSR) assignments by S&P; (ii) evaluating the effect of bank opacity on split bank ratings; and (iii) analysing to what extent split bank ratings are driven by systematic components including opacity at the sovereign government level and the sovereign rating ceiling. The first empirical chapter finds that bank size and competition between GRAs have the strongest effect on the probability of S&P rating assignments. GSR (NSR) assignments by S&P are more likely for larger (smaller) banks, although there exists a dependency on whether the bank has prior NSR (GSR) ratings. Fitch ratings potentially substitute S&P ratings, while Moody’s ratings complement S&P. The second empirical chapter uses bank size, capital, liquidity and profitability as proxies of bank opacity. The analysis demonstrates that bank opacity increases the probability of split bank ratings. Also, split-rated banks are more likely to experience future rating migrations than non-split rated banks, and wider rating differences have the strongest impact. The third empirical chapter presents evidence of a significant effect of split sovereign ratings and the ceiling effect on split bank ratings. The probability that S&P assigns bank ratings in a more conservative manner than Moody’s (Fitch), increases when S&P assigns lower sovereign ratings than Moody’s (Fitch). The same result is achieved when Moody’s assigns lower sovereign ratings than Fitch. Moreover, bank rating disagreements are more sensitive to split sovereign ratings when the ceiling effect of the GRA that assigns higher bank and sovereign ratings prevails. The thesis provides highly original contributions to the literature. New evidence on the rating dynamics between NSR and GSR assignments in emerging economies offers a novel perspective on the study of bank rating determinants. The thesis also provides clear insights on the strong effect of asset opacity and information quality on split bank ratings in emerging economies. These issues are of interest for policymakers, banks and other market participants due to their potential impact on debt issuance costs and foreign investment flows.
Supervisor: ap Gwilym, Owain ; Alsakka, Rasha Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: Split ratings ; national and global scale ratings ; emerging market bank ratings ; rating migrations