Review of Quantitative Finance and Accounting

, Volume 27, Issue 4, pp 403–438

The impact of bank regulations, supervision, market structure, and bank characteristics on individual bank ratings: A cross-country analysis

  • Fotios Pasiouras
  • Chrysovalantis Gaganis
  • Constantin Zopounidis
Article

DOI: 10.1007/s11156-006-0045-0

Cite this article as:
Pasiouras, F., Gaganis, C. & Zopounidis, C. Rev Quant Finan Acc (2006) 27: 403. doi:10.1007/s11156-006-0045-0

Abstract

We use country level data and bank level data from 71 countries and 857 banks to investigate the impact of bank regulations, supervision, market structure, and bank characteristics on individual bank ratings. The results indicate that less cost efficient banks, with higher than average levels of provisions relatively to their income, and lower liquidity tend to have lower ratings. Larger and more profitable banks tend to obtain higher ratings. Higher equity to assets ratio results in higher ratings only when we do not control for bank supervision and regulations. Capital requirements, restrictions on bank activities, official disciplinary power, explicit deposit insurance scheme, higher deposit insurer power, liquidity and diversification guidelines, entry requirements, fraction of entries denied, and economic freedom have a significant impact on ratings in all of our specifications. Disclosure requirements and foreign banks entry have a significant impact on ratings only when we simultaneously control for the regulatory environment and the market structure, while auditing requirements have a significant impact only when we control for the regulatory environment alone. Finally, banks in developed countries are assigned higher ratings. However, this impact disappears when we include the regulatory and supervision variables in the models.

Keywords

Banks Ratings Regulations Supervision 

Copyright information

© Springer Science + Business Media, LLC 2006

Authors and Affiliations

  • Fotios Pasiouras
    • 1
    • 2
  • Chrysovalantis Gaganis
    • 1
  • Constantin Zopounidis
    • 1
  1. 1.Financial Engineering Laboratory, Department of Production Engineering & ManagementTechnical University of Crete, University CampusChaniaGreece
  2. 2.Department of Economics, Finance & Accounting, Faculty of BusinessEnvironment & Society, Coventry UniversityUK

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