Credit Ratings and Corporate Reputation : A Quantitative Study on 37 Large European Banks During 2018-2024

Sammanfattning

This thesis aims to investigate whether corporate reputation indicators provide explanatory value in credit ratings beyond traditional financial indicators among the largest European banks during the period 2018-2024. Credit ratings play an important role in financial markets by summarizing the creditworthiness of institutions and influence both investment decisions and regulatory frameworks. However, previous research suggests that credit ratings might not fully capture all relevant factors, such as reputation. The study applies a quantitative research approach using panel data for a sample of 37 large European banks rated by Fitch Ratings. The thesis conducts a fixed effects multiple regression analysis with Ordinary Least Squares (OLS) estimates using credit ratings as the dependent variable and reputation indicators as independent variables, along with using credit risk indicators and size of banks as control variables. Reputation is measured through Search Interest Volatility, measuring fluctuations in market attention and Scandal Severity, capturing the intensity of negative events affecting banks. The traditional financial indicators include Return on Risk-Weighted Assets (RoRWA), Tier 1 Ratio, Expected Credit Loss (ECL) Ratio, Liquidity Coverage Ratio (LCR) and total assets. The results show that the selected reputation indicators do not provide statistically significant evidence that they provide additional explanatory value for credit ratings, after financial variables are included in the model. In contrast, financial indicators, particularly the ECL Ratio and Tier 1 Ratio, are statistically significant which is consistent with how credit risk is typically measured. These findings suggest that credit ratings in the sample primarily reflect financial information rather than the chosen reputation indicators. This is consistent with the theories used to form the hypothesis as the Theoretical Framework of the study indicates a research gap where the importance of corporate reputation and its potential effect on triggering financial instability might not be reflected in the assessment of credit risk.