This chapter differentiates the effect of solicited credit ratings (SCRs) and unsolicited credit ratings (UCRs) on bank leverage decision before and after the credit rating change. We find that banks with UCRs issue less debt relative to equity when the credit rating changes are approaching. Such findings are also prominent when bank credit rating moves from investment grade to speculative grade. After credit rating upgrades (downgrades), banks with unsolicited (solicited) credit ratings are inclined to issue more (less) debt relative to equity than those with solicited (unsolicited) credit ratings. We conclude that SCR and UCR changes lead to significantly different effects on bank leverage decision.
Dr Qin gratefully acknowledges the financial support from Beijing Natural Science Foundation of China (Grant No. 61603092)
Hsiao, Y.-J., Qin, L. and Lin, Y.-L. (2019), "Do Unsolicited Bank Credit Ratings Matter to Bank Leverage Decision? Evidence from Asian Countries", Advances in Pacific Basin Business, Economics and Finance (Advances in Pacific Basin Business, Economics and Finance, Vol. 7), Emerald Publishing Limited, Bingley, pp. 231-253. https://doi.org/10.1108/S2514-465020190000007011
Emerald Publishing Limited
Copyright © 2019 Emerald Publishing Limited