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Annals of Finance

, Volume 9, Issue 3, pp 471–500 | Cite as

Predicting rating changes for banks: how accurate are accounting and stock market indicators?

  • Isabelle Distinguin
  • Iftekhar HasanEmail author
  • Amine Tarazi
Research Article

Abstract

We aim to assess how accurately accounting and stock market indicators predict rating changes for Asian banks. We conduct a stepwise process to determine the optimal set of early indicators by tracing upgrades and downgrades from rating agencies, as well as other relevant factors. Our results indicate that both accounting and market indicators are useful leading indicators but are more effective in predicting upgrades than downgrades, especially for large banks. Moreover, early indicators are only significant in predicting rating changes for banks that are more focused on traditional banking activities such as deposit and loan activities. Finally, a higher reliance of banks on subordinated debt is associated with better accuracy of early indicators.

Keywords

Bank failure Bank risk Ratings Emerging market 

JEL Classification

G21 G28 

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Copyright information

© Springer-Verlag 2012

Authors and Affiliations

  • Isabelle Distinguin
    • 1
  • Iftekhar Hasan
    • 2
    • 3
    Email author
  • Amine Tarazi
    • 1
  1. 1.Université de LimogesLimogesFrance
  2. 2.Fordham UniversityNew YorkUSA
  3. 3.Bank of FinlandHelsinkiFinland

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