Is bank creditworthiness associated with risk disclosure behavior? Evidence from Islamic and conventional banks in emerging countries

Rihab Grassa, Néjia Moumen, Khaled Hussainey

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    Abstract

    We investigated if banks with higher risk disclosure scores benefitted from higher credit ratings relative to banks with weaker risk disclosure scores. Also, we investigated if Islamic banks could exert positive effects on their credit ratings. By employing a sample of 169 banks observed over the period from 2009 to 2014 and after controlling for bank-specific risk characteristics, we documented banks with high credit rating scores were keen to preserve an upper level of credit risk transparency when compared to banks with lower credit ratings. Moreover, the positive association between credit rating and risk disclosure is more pronounced for conventional banks than for Islamic banks. When compared to conventional banks, Islamic banks disclose less risk information due to the risk nature of their businesses, which affect in turn their credit ratings.
    Original languageEnglish
    Article number101327
    Number of pages17
    JournalPacific-Basin Finance Journal
    Volume61
    Early online date9 Apr 2020
    DOIs
    Publication statusPublished - 1 Jun 2020

    Keywords

    • Credit rating
    • conventional banks
    • risk disclosure
    • Islamic banks
    • ownership structure

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