Does sovereign creditworthiness affect bank valuations in emerging markets?

Williams, Gwion; Alsakka, Rasha; Gwilym, Owain ap

doi:10.1016/j.intfin.2015.02.001

Cited by 21 publications

(14 citation statements)

References 40 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Similarly, Caselli, Gandolfi, and Soana (2014 find evidence of significant bank losses following sovereign rating downgrades in the European market. Correa et al (2014) find that banks which are expected to receive government support demonstrate lower stock returns after a sovereign rating downgrade, while Williams, Alsakka and ap Gwilym (2015) show that S&P actions induce a significant impact on bank valuations in emerging markets. Further, BIS 2011emphasises that sovereign debt concerns push up banks' funding costs.…”

Section: Spillover Channelsmentioning

confidence: 99%

“…Sovereign ratings are considered as a key factor determining bank ratings (e.g. Shen et al, 2012;Alsakka et al, 2014;Huang and Shen, 2015;Williams et al, 2015), while bank rating levels are included to control for the banks' financial conditions and creditworthiness (see Section 2.1 for further details). Variables describing bank size, profitability, asset quality, capital adequacy and liquidity are found to be significant in explaining bank ratings (e.g.…”

Section: Univariate Testsmentioning

confidence: 99%

See 1 more Smart Citation

Does the disclosure of unsolicited sovereign rating status affect bank ratings?

Klusak

Alsakka

Gwilym

2017

The British Accounting Review

Self Cite

View full text Add to dashboard Cite

This paper integrates three themes on regulation, unsolicited credit ratings, and the sovereign-bank rating ceiling. We reveal an unintended consequence of the EU rating agency disclosure rules upon rating changes, using data for S&P-rated banks in 42 countries between 2006 and 2013. The disclosure of sovereign rating solicitation status for 13 countries in February 2011 has an adverse effect on the ratings of intermediaries operating in these countries. Conversion to unsolicited sovereign rating status transmits risk to banks via the rating channel. The results suggest that banks bear a penalty if their host sovereign does not solicit its ratings

show abstract

Section: Spillover Channelsmentioning

confidence: 99%

Section: Univariate Testsmentioning

confidence: 99%

Does the disclosure of unsolicited sovereign rating status affect bank ratings?

Klusak

Alsakka

Gwilym

2017

The British Accounting Review

Self Cite

View full text Add to dashboard Cite

show abstract

“…Prior studies find that the stock prices of domestic banks decrease significantly upon negative sovereign rating announcements but have no significant reaction to positive ones, particularly in developed markets (Alsakka et al, 2014;Correa et al, 2014;Caselli et al, 2016). In regions with more serious information asymmetry, even positive sovereign rating announcements can have a significant positive impact on bank stocks (Williams et al, 2013(Williams et al, , 2015.…”

Section: Introductionmentioning

confidence: 99%

Sovereign rating announcements and the integration of African banking markets

Schiereck

2019

JRF

View full text Add to dashboard Cite

Purpose The purpose of this paper is to examine the information spillover of sovereign rating changes on the market valuation of bank stocks in Africa. Design methodology First, the authors apply event study methodology to evaluate the stock market reaction of African bank stocks on the announcement of sovereign rating changes. Second, the cross sections of the abnormal returns are examined by multivariate regression analyses. Third, the findings are proved for robustness. Findings The authors investigate how 37 African banks react to 203 African sovereign rating announcements from the three leading credit rating agencies over the period 2010-2016 and find that negative announcements trigger the significant positive stock reactions of African banks, especially contributed by banks in the non-reviewed African countries. These unusual reactions can be explained by the low integration and the severe information asymmetry of African capital markets. The authors further locate the influencing factors of banks’ reactions and show that rating downgrades magnify the abnormal effects while the membership of the African Free Trade Zone mildens the stock market reactions. Research limitations/implications Limitations are given by the limited sample size. There are only limited numbers of publicly listed African banks with sufficient trading data. Practical implications The paper argues for a critical dependency of African bank equity valuation in the case of sovereign debt rating changes in neighbor countries. This observation is important for the risk assessment of African banking assets. Originality/value The paper is the first to examine stock market reactions on sovereign rating announcements for the evaluation of capital market integration in Africa. It thereby underlines the usefulness of this simply to apply approach as an instrument for ongoing examining the progress in capital market development in emerging countries.

show abstract

“…The academic literature has shown that changes in sovereign debt ratings can impact financial markets. Most notably, negative sovereign rating actions have affected sovereign bond markets (Cantor and Packer 1996; Gande and Parsley 2005), sovereign credit default swaps (CDS) markets (Ismailescu and Kazemi 2010), equity markets (Kaminsky and Schmukler 2002; Brooks et al 2004; Ferreira and Gama 2007; Correa et al 2012, Williams et al 2015, Tran et al 2019), and foreign currency markets (Alsakka and ap Gwylim 2012a; Alsakka and ap Gwylim 2012b; Alsakka and ap Gwylim 2013; Tran et al 2019). Most of the above‐cited papers also showed spillovers to other countries, especially neighboring and emerging ones.…”

Section: Introductionmentioning

confidence: 99%

The Dilemma of International Diversification: Evidence from the European Sovereign Debt Crisis

Hasan

Kostova

Naceur

2020

Asia-Pac J of Fin Stud

View full text Add to dashboard Cite

This paper tests how capital markets value the international diversification of banks in good and in bad economic times by investigating changes in domestic and foreign sovereign debt ratings before and during the European sovereign debt crisis. Tracing 320 European banks in 29 countries and 226 credit rating announcements for European sovereigns between 1 January 2001 and 15 August 2012, we show that the market values banks with access to foreign funds. Despite occasional adverse effects immediately following negative news regarding sovereign credit rating changes, international diversification was found to be beneficial to European banks, especially during periods of distress.

show abstract

Does sovereign creditworthiness affect bank valuations in emerging markets?

Cited by 21 publications

References 40 publications

Does the disclosure of unsolicited sovereign rating status affect bank ratings?

Does the disclosure of unsolicited sovereign rating status affect bank ratings?

Sovereign rating announcements and the integration of African banking markets

The Dilemma of International Diversification: Evidence from the European Sovereign Debt Crisis

Contact Info

Product

Resources

About