Bank Credit Rating Changes, Capital Structure Adjustments and Lending

Wed 7 February 2018

Mill Lane Lecture Rooms

This paper examines the causal effect of bank credit
rating changes on bank capital structure decisions. Banks adjust their
capital structure following a credit rating downgrade. Adjustments
involve: leverage, rating sensitive liabilities and lending. Rating
upgrades do not affect capital structure activities suggesting that
banks target minimum rating levels. In our study, we also exploit the
asymmetric impact of downgrades of banks based in Greece, Ireland,
Italy, Spain and Portugal during the EU sovereign debt crisis. This
asymmetric effect leads to greater capital adjustments, reductions in
long-term funding and lending of banks from those countries relative to
other banks. Our results are consistent with the expectation of discrete
cost (benefits) associated with rating changes.

Claudia Girardone is Professor of Banking and Finance at
Essex Business School of the University of Essex. She is also Director
of the Essex Finance Centre (EFiC) and the School’s Director of
Research. Professor Girardone has published over 50 articles on various
aspects of banking and finance in books and peer-reviewed international
journals. She is a co-author of the textbook Introduction to Banking (FT
Pearson Education, 2015). She is currently on the editorial board of
several journals including the Journal of Financial Economic Policy and
The European Journal of Finance. Her current research areas are on
banking sector performance and stability, bank corporate governance, the
industrial structure of banking and access to finance.

Cost: Free