TY - JOUR
T1 - Sovereign credit ratings and bank funding cost
T2 - Evidence from Africa
AU - Opoku Mensah, Mary
AU - Agbloyor, Elikplimi Komla
AU - Harvey, Simon Kwadzogah
AU - Fiador, Vera Ogeh
N1 - Publisher Copyright:
© 2017 Elsevier B.V.
PY - 2017/12
Y1 - 2017/12
N2 - This paper aims to examine the relationship between sovereign credit ratings and funding costs of banks and also the relationship between sovereign credit ratings. Using over 300 banks operating in Africa from 2006 to 2012, the study investigates sovereign ratings’ impact on funding cost. The long term domestic sovereign ratings announced by Fitch and Standard & Poor's during the period under study were used. The panel made use of Generalized Method of Moments estimation strategy for funding cost. The findings of the study indicate that sovereign ratings upgrades have an inverse and statistically significant relationship with funding costs. The findings suggest that sovereign rating upgrades makes it easier for banks to access funds from the capital and global market at a cheaper cost compared to rating downgrades. The study recommends and encourages emerging economies to use the services provided by credit rating agencies since these agencies may help improve accessibility of funds in the international markets by banks. It is recommended that sovereign rating should be considered as a supplement and not a substitute to our own perceived judgement and research.
AB - This paper aims to examine the relationship between sovereign credit ratings and funding costs of banks and also the relationship between sovereign credit ratings. Using over 300 banks operating in Africa from 2006 to 2012, the study investigates sovereign ratings’ impact on funding cost. The long term domestic sovereign ratings announced by Fitch and Standard & Poor's during the period under study were used. The panel made use of Generalized Method of Moments estimation strategy for funding cost. The findings of the study indicate that sovereign ratings upgrades have an inverse and statistically significant relationship with funding costs. The findings suggest that sovereign rating upgrades makes it easier for banks to access funds from the capital and global market at a cheaper cost compared to rating downgrades. The study recommends and encourages emerging economies to use the services provided by credit rating agencies since these agencies may help improve accessibility of funds in the international markets by banks. It is recommended that sovereign rating should be considered as a supplement and not a substitute to our own perceived judgement and research.
KW - Credit rating agencies
KW - Funding cost
KW - Sovereign credit rating
UR - http://www.scopus.com/inward/record.url?scp=85025649503&partnerID=8YFLogxK
U2 - 10.1016/j.ribaf.2017.07.024
DO - 10.1016/j.ribaf.2017.07.024
M3 - Article
AN - SCOPUS:85025649503
SN - 0275-5319
VL - 42
SP - 887
EP - 899
JO - Research in International Business and Finance
JF - Research in International Business and Finance
ER -