Risk perception and the financial system

Lynnette D Purda
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Lynnette D Purda: Queen's School of Business, Queen's University, Kingston, Ontario, Canada

Journal of International Business Studies, 2008, vol. 39, issue 7, 1178-1196

Abstract: I examine how a country's financial system influences assessments of firm-level risk. Consistent with theories of financial intermediation, I find that firms located in a country with a bank-oriented financial system are perceived as posing a lower credit risk and correspondingly are assigned higher credit ratings than otherwise similar firms in a market-oriented setting. Even after considering elements of a country's legal infrastructure that relate to creditor protection and insolvency proceedings, the financial system remains an important determinant of credit-rating assignment. The results are robust to the inclusion of several firm-level controls, including financial performance, industry, ownership concentration, political connections, and the ease with which the firm's assets can be monitored. Journal of International Business Studies (2008) 39, 1178–1196. doi:10.1057/palgrave.jibs.8400411

Date: 2008
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