Significance of Financial and Non Financial Information on Credit Rating: An Empirical Study on Banking and Insurance Sectors of Pakistan
Abstract
Purpose: Apart from standard spheres of financial institutions’ performance such as asset quality, profitability, liquidity and efficiency; the study investigates the influence of non-financial factors such as governance and management.
Design/Methodology/Approach: This study utilizes 2009 through 2018 data for the sample of commercial banks and insurance companies of Pakistan to analyze the significance of financial and non-financial information on credit rating. The study is done by employing frequently used Fully Modified Ordinary Least Square (FMOLS).
Findings: The main contribution lies including explanatory variables from various areas that have an impact on the financial position of the examined banks and insurance companies.
Implications/Originality/Value: The obtained results suggest that the combined use of financial and non-financial information tends to a significant impact on credit rating.
Downloads
Article Analytics Summary
References
Adams, M., Burton, B., & Hardwick, P. (2003). The determinants of credit ratings in the United Kingdom insurance industry. Journal of Business Finance & Accounting, 30(304), 539-572. DOI: https://doi.org/10.1111/1468-5957.00007
Beltratti, A., & Stulz, R. M. (2012). The credit crisis around the globe: Why did some banks perform better? Journal of Financial Economics, 105(1), 1-17. DOI: https://doi.org/10.1016/j.jfineco.2011.12.005
Bellotti, T., Matousek, R., & Stewart, C. (2011). Are rating agencies’ assignments opaque? Evidence from international banks. Expert Systems with Applications, 38(4), 4206-4214. DOI: https://doi.org/10.1016/j.eswa.2010.09.085
Boot, A.W.A., Milbourn, T.T., & Schmeits, A. (2006). Credit ratings as coordination mechanisms, The Review of Financial Studies, 19(1), 81-118. DOI: https://doi.org/10.1093/rfs/hhj009
Caouette, J. B., Altman, E. I., & Narayanan, P. (1998). Managing Credit Risk: The Next Great Financial Challenge. Hoboken, N.J.: Wiley.
Carbone, I., & Kohn, L. M. (1999). A method for designing primer sets for speciation studies in filamentous ascomycetes. Mycologia, 91(3), 553-556. DOI: https://doi.org/10.1080/00275514.1999.12061051
Cocheo, S. (2000). Performance picture: avoiding efficiency as a religion. American Bankers Association. ABA Banking Journal, 92(2), S8.
Doumpos, M., & Pasiouras, F. (2005). Developing and testing models for replicating credit ratings: A multicriteria approach. Computational Economics, 25(4), 327-341. DOI: https://doi.org/10.1007/s10614-005-6412-4
Etikan, I., Musa, S. A., & Alkassim, R. S. (2016). Comparison of convenience sampling and purposive sampling. American Journal of Theoretical and Applied Statistics, 5(1), 1-4. DOI: https://doi.org/10.11648/j.ajtas.20160501.11
Erkens, D. H., Hung, M., & Matos, P. (2012). Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide. Journal of corporate finance, 18(2), 389-411. DOI: https://doi.org/10.1016/j.jcorpfin.2012.01.005
Hammer, P. L., Kogan, A., & Lejeune, M. A. (2012). A logical analysis of banks’ financial strength ratings. Expert Systems with Applications, 39(9), 7808-7821. DOI: https://doi.org/10.1016/j.eswa.2012.01.087
Kao, C., Chiang, M. H., & Baltagi, B. H. (2000). Nonstationary panels, panel cointegration and dynamic panels. Advances in Econometrics, 15, 179-222. DOI: https://doi.org/10.1016/S0731-9053(00)15007-8
Liao, Y. P., Li, K. F., & Hung, S. (2017). Does the conflict of interest matter for credit ratings? The impact of the client’s economic importance and the CRA tenure. Asia-Pacific Journal of Accounting & Economics, 24(3-4), 302-322. DOI: https://doi.org/10.1080/16081625.2016.1157024
Mensah, M. O., Agbloyor, E. K., Harvey, S. K., & Fiador, V. O. (2017). Sovereign credit ratings and bank funding cost: Evidence from Africa. Research in International Business and Finance, 42, 887-899. DOI: https://doi.org/10.1016/j.ribaf.2017.07.024
Poon, W. P. (2003). Are unsolicited credit ratings biased downward? Journal of Banking & Finance, 27(4), 593-614. DOI: https://doi.org/10.1016/S0378-4266(01)00253-9
Shen, C. H., Huang, Y. L., & Hasan, I. (2012). Asymmetric benchmarking in bank credit rating. Journal of International Financial Markets, Institutions and Money, 22(1), 171-193. DOI: https://doi.org/10.1016/j.intfin.2011.08.004
Copyright (c) 2021 Muhammad Khalid Rashid, Muhammad Noor ul Haq, Umair Khalid, Abdul Basit
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
CSRC Publishing and JAFEE adhere to Creative Commons Attribution-Non Commercial 4.0 International License. The authors, submitting and publishing in the Journal of Accounting and Finance in Emerging Economies published by CSRC Publishing, retain the copyright of their work and give the journal right to publish their work agreeing to the licensing policy under Creative Common Attribution-Non Commercial (NC-BY-NC 4.0) International. Under this license, the published authors let others remix, tweak, and build upon their work non-commercially. Yet all the other authors using the content of CSRC Publishing are required to cite author(s), journal name and publisher in their work. CSRC Publishing and JAFEE follow an Open Access Policy for copyright and licensing.