THE EFFECT OF CREDIT RATINGS ON BANK PERFORMANCE AND STOCK RETURN

Abstract

The study on The effect of credit ratings on bank performance and stock returns” aims to explore how credit ratings influence a bank’s operating and financial performance. Additionally, the study aims to analyze the relation between credit rating and stock market returns, ROA and ROE. This research has focused at what influences credit ratings in Pakistan. Secondly, how credit ratings affect firm financial performance and how credit ratings affect stock returns. The empirical analysis of this study is, the panel data of 20 commercial banks as our population as well as sample. All these banks are listed on KSE-100 index are considered as selected sample. The data size for our data collection is of 10 years from 2011-2021. The findings has obtained by Descriptive analysis, panel unit root test, OLS, and regression results by Hausman test to estimate impact of credit ratings on bank performance and stock returns. The Panel Unit Root test result indicated that all the variables, including credit rating: stock returns, ROA, and Return on Equity (ROE) were stationary and the regression results demonstrated a significant impact on firm performance. The overall, findings suggest that maintaining a high credit rating is beneficial for banks in terms of their ability to attract investors, access capital, and enhance their overall financial health. The results of this study's analysis may make it easier for debt holders, investors, shareholders, and other interested parties to comprehend the importance of credit ratings and their impact on a company's performance and stock return.