165
1, XXIV, 2021
Finance
DOI: 10.15240/ ul/001/2021-1-011
SOVEREIGN CREDIT RATINGS AND ASIAN
FINANCIAL MARKETS
Khansa Pe aiz1, Zuzana Vi gle o á2, Muhammad Asi Khan3,
Usman Akba 4, Józse Popp5
1 Yanshan Uni e si y, School o Economics and Managemen , China, ORCID: 0000-0002-0474-8433,
[email p o ec ed];
2 Tomas Ba a Uni e si y in Zlín, Facul y o Managemen and Economics, Czech Republic, ORCID: 0000-0002-7957-
9216, [email p o ec ed];
3 Uni e si y o Ko li, Facul y o Managemen Sciences, Depa men o Comme ce, Pakis an, ORCID: 0000-0002-
3563-2951, [email p o ec ed];
4 Yanshan Uni e si y, School o Economics and Managemen , China, ORCID: 0000-0003-2109-546X,
[email p o ec ed];
5 WSB Uni e si y, Depa men o Managemen , Facul y o Applied Sciences, Poland, ORCID: 0000-0003-0848-4591,
[email p o ec ed].
Abs ac : Each egion/coun y seeks o become mo e e icien o gain he con idence o po en ial
in es o s. Mos o he Asian economies a e ca ego ized as eme ging ma ke s, whe e he ole o
inancial ma ke s has e en become mo e in ensi ied o p o ide inancial se ices o inc easing
economic and inancial ac i i ies. Asian inancial ma ke has momen ously su e ed du ing he
Asian, and global inancial c isis. The mass des uc ion was mainly caused due o he moun ing
unce ain y, which spillo e h oughou he egion, whe e in es o s los hei con idence. Conside ing
he pi o al economic ole o inancial ma ke s, and implica ions e ol e due o so e eign c edi
a ing announcemen s, his s udy aims o model he ole o so e eign c edi a ing announcemen s
by S anda d and Poo ’s, and Moody’s on inancial ma ke de elopmen o he Asian egion. Fo
24 Asian coun ies/ egions, we pe o m a eg ession analysis on so e eign c edi a ing changes
based on inancial ma ke de elopmen index and i s ac o s. The indings o D iscoll K aay’s obus
es ima o e eals ha imp o emen in so e eign c edi a ing sco e enhances he inancial ma ke
de elopmen in he egion. Mo eo e , we applied se e al obus ness checks, such as al e na i e
es ima o s, al e na i e measu es, and h ee sub-dimensions o inancial ma ke de elopmen .
Acco ding o he indings om hese obus ness checks, he posi i e impac o so e eign c edi
a ings on inancial ma ke de elopmen in he egion is obus . Unlike p io li e a u e (which is
con ined o he e en s udy app oach), his s udy u ilizes he his o ical g ades o es ablish he
ela ionship unde he s anda d e o clus e ing app oach. Due o he di e si y o in es o s’
specula ions, we p opose a mic o-le el ex ension o he p esen model o o e come a di e ence
in coun y policy.
Keywo ds: So e eign c edi a ings, inancial ma ke de elopmen , panel da a models, S anda d
and Poo ’s, Moody’s, Asia.
JEL Classi ica ion: E44, F3, C23, G15.
APA S yle Ci a ion: Pe aiz, K., Vi gle o á, Z., Khan, M. A., Akba , U., & Popp, J. (2021).
So e eign C edi Ra ings and Asian Financial Ma ke s. E&M Economics and Managemen ,
24(1), 165–181. h ps://doi.o g/10.15240/ ul/001/2021-1-011
In oduc ion
So e eign c edi a ing (SCR) is an impo an
u ensil o judge he c edi wo hiness and
compe i i eness o an economy, which
acili a es he po en ial in es o s o gain
con idence in making in es men decisions
ac oss he globe (Yang e al., 2019). I se es
as a “c edi passpo ” o in es o s o gain use ul
166 2021, XXIV, 1
Finance
in o ma ion abou he inancial ma ke s in e ms
o dependable sha e p ices, im inancial
obs acles along wi h p o oca i e e ec i e
in es men (Mclean e al., 2012; Xu e al.,
2019; Zhao e al., 2020). Highe SCR signals
a ela i ely highe pe o mance o companies/
economies (Cubas-Díaz e al., 2018). The
e icien ma ke hypo hesis holds ha inancial
ma ke s a e sensi i e o new in o ma ion, whe e
a piece o in o ma ion is ansla ed in o secu i y
p ices, depending upon he de elopmen o
such ma ke s. Li e a u e has es ablished ha
SCR announcemen s in luence he p ices
o inancial secu i ies (Klige e al., 2000;
Poon e al., 2008). The e o e, changes in he
SCR encou age bo h, he s ock ma ke , and
he coun y isk – such a change p o ides
bo owe s and lende s wi h an indica ion o
a co po a ion’s isk p o ile, enabling hem o
de e mine he isk p emiums. SCR imp o es
he capabili y o eme ging economies o
cap u e he in e na ional ma ke by a ac ing
o eign in es men s (And i zky e al., 2007;
Bissoondoyal-Bheenick e al., 2015; D o ský
e al., 2019; Ga u o á e al., 2020; Khu sheed
e al., 2018; Kim e al., 2008; Hussain e al.,
2018). Mos o he e e ed s udies examine he
sho - e m e ec s o such announcemen s on
secu i y p ices using e en s udy app oach and
ind ha he inancial ma ke is sensi i e o SCR
announcemen s, whe e in es o s di e en ly
eac o he new in o ma ion, depending upon
he di ec ion (posi i e/nega i e) and magni ude
o change (Böninghausen e al., 2015; B eme
e al., 2002; C eigh on e al., 2007; Hu e al.,
2016; Jo ion & Zhang, 2007; Klima ičiena,
2011; Li e al., 2019; Michaelides e al., 2012;
No den & Webe , 2004; Puk huan hong-Le e
al., 2007; Subaşı, 2008).
Impo an ly, he e en s udy me hodology
p o ides inpu o sho - un in es men
decisions, whe e s a egic in es men
decisions demand a mo e ca e ul analysis
o he implica ion o changes in SCR and
speci ically in Asian ma ke s. Al hough, e en
s udy app oach guides sho - e m in es men
decision, ye , he indings o e en s udy a e
con lic ing (Li e al., 2019). Li e al. (2019) is
an excep ion, which cap u es he sho - and
long- un asymme ic impac o SCR bu his is
also on he Eu opean inancial ma ke using
he nonlinea amewo k (Shin e al., 2014). No
doub ha his is an impo an e o ha ex ends
he li e a u e on he pa adigm o long- un
asymme ic analysis in SCR- inancial ma ke
connec ion, ye his amewo k o e looks some
o he c i ical diagnos ic issues (i.e., c oss-
sec ional dependence, he e oskedas ici y, and
se ial co ela ion) embedded o panel da a
es ima ion.
This pape aims o de e mine he ole o
SCR in he inancial ma ke de elopmen o
Asian economies, which is ound sca ce. The
global inancial c isis sp ead h ough ade
and inancial channels hi he Asian economy
and caused a simul aneous global slowdown.
The huge unce ain y in he u u e o he Asian
economy has led o he eco e y o he inancial
sys em, which has p omo ed his esea ch. We
use D iscoll K aay’s co a iance ma ix (D iscoll
e al., 1998) o in es iga e he impac o SCR
announcemen s on he de elopmen o inancial
ma ke s in 24 Asian economies/ egions om
1990 o 2018.The pape is o ganized as ollows:
he li e a u e e iew b ings a c i ical e iew o
ano he in e na ional esea ch ha ocuses
on he opic o SCR. The ollowing pa deals
wi h he ma e ials and me hods used o ul ill
he aim o he pape . The nex pa ou lines he
empi ical esul s and discussion o he esul s.
The pape is concluded wi h a summa y o he
main esul s and limi a ions o he pape .
1. Theo e icalBackg ound
The h ee main a ing agencies (Moody’s,
S anda d and Poo ’s and Fi ch) p o ide c edi
a ings based on economic, social, and poli ical
ac o s (Chen e al., 2016; Chodnicka-Jawo ska,
2017). Many pieces o esea ch ha e con i med
he impo ance o SCR o he economic
de elopmen o coun ies (e.g. A onso e al.,
2011; Gä ne e al., 2011; Teixei a e al., 2014).
SCR in luences a bo owing cos in in e na ional
ma ke s no only o he so e eign s a e bu
also o he inancial ins i u ion ac i e in ha
s a e (D ago & Gallo, 2017). Chen e al. (2016)
s a e ha SCR has an impac on in es men
decisions and economic g ow h. Adelino and
Fe ei a (2016) show he dependence o he
a ing sco e o banks on he SCR. Banks a e
a ec ed i he SCR is downg aded. Al a illa e
al. (2017) poin ed ou a s ong e ec o SCR on
bank lending and domes ic i m in he case o
banks om he Eu ozone. Acco ding o Gilch is
e al. (2014), i in es o s es ima e he high isk
o he coun y, hey demand highe in e es
a es. Fi ch (2014) poin s he highe impo ance
o SCR du ing he c isis. The e ec o inancial
167
1, XXIV, 2021
Finance
c ises on SCR has been analyzed by Ams ad
and Packe (2015).
A coun y’s inancial his o y, liabili ies
and cu en asse s a e used o calcula e
SCR and a e subjec o isk assessmen and
p o ide in es o s wi h a ai assessmen . The
downg ade o so e eign a ings in neighbo ing
coun ies du ing he c ises a ec s s ock ma ke s
(Muha am e al., 2019). Re u ns o coun ies
e ec ed by c isis e ec s due o changes in
he a ing o o he coun ies, sugges ing ha
SCR changes ope a e as a u he a enue o
in e na ional inancial con agion du ing he
Asian inancial c ises is con i med by (Li e al.,
2008). A coun y’s inancial s abili y o he long
un is la gely de e mined by a mix u e o cu en
accoun balances, o eign deb le el, he s abili y
o o eign exchange, cu en accoun balances,
and in e na ional liquidi y (Gospoda chuk &
Suchko a, 2019; Lu e al., 2020). In he long
un, inancial, economic, and poli ical a iables
a ec he s ock ma ke o Tu key (Sa i e al.,
2013). Whe eas only poli ical and inancial isk
a iables a e ha ing an impac in he sho
un. A e he inancial c isis, liquidi y isk was
conside ed in he model o Eu opean banks by
he cha ac e is ics o banks (such as capi al,
size, and business model). Expe imen al esul s
show ha he co e banking business, based
on he ma u i y ans o ma ion p ocess, is he
mos sensi i e o liquidi y isk (Galle a e al.,
2019). Legal ins i u ional en i onmen is closely
connec ed o he banking sys em pe o mances
and hus so e eign c edi s a ings as he esul s
om he s udy Kao e al. (2019) show.
Ano he esea ch in es iga ed he dynamic
ela ionship be ween liquidi y and c edi isk in
he I alian deb ma ke h ough he Eu ozone
c isis and succeeding Eu opean Cen al Bank
in e e ences – indings e eal ha c edi isk
is a majo d i e o ma ke liquidi y (Pelizzon e
al., 2016; Helle & Wa zala, 2019). De Souza
Mu cia e al. (2013) s udied he e ec o SCR
in he lis ed public companies’ s ock p ices in
he B azilian ma ke and e eals ha SCR
decla a ion has in o ma ion con en because i
will a ec s ock e u ns and lead o abno mal
e u ns, especially when hey ca y he bad news
o he ma ke h ough he obse a ion sample o
242 lis ed companies h ough e en esea ch.
This iew is la gely due o he belie ha he
coun y’s a ings do p o ide new in o ma ion o
inancial ma ke s. Bissoondoyal-Bheenick e
al. (2015) wi nesses ha he upg ade o SCR
has signi ican ly a ec ed he s ock ma ke .
Ra ing imp o emen usually occu s du ing he
uni ica ion o inancial ma ke s, while a ing
decline occu s du ing pe iods o a ma ke
down u n.
Speci ically, Huang e al. (2018) examine
how he downg ade o bond a ings ook
in o accoun he p ice o China’s common
s ock and sugges ed ha he a ings gi en
by a ing agencies ha e in o ma ion alue
and ha he ma ke e ec i ely esponded o
such announcemen s. The s eng h-based
Eu ozone mas e sp ead model de e mines he
liquidi y p icing e ec in he sp ead be ween
bonds issued by Ge man ins i u ions and hei
so e eign coun e pa s. The au ho s ound ha
liquidi y e ec s accoun ed o a conside able
sha e o sp ead luc ua ions (Mon o e
al., 2013). Only he Chinese s ock ma ke
is poli ically isk-sensi i e p o ed by wide
esea ch on BRICs coun ies (Hammoudeh
e al., 2013). Asian s ock exchange is closely
connec ed o he U.S. s ock exchange and
o he wo ld inancial ma ke s esul ing in global
spillo e e ec ha impac s coun y’s c edi
a ings (Gulza e al., 2019).
The impac o SCR on co po a e bo owing
goes beyond he so e eign a ing p ocess.
Resea ch on he impac o so e eign caps on
company a ings emains impo an in coun ies
whe e capi al accoun es ic ions s ill exis and
coun ies wi h high poli ical isks (Bo ensz ein
e al., 2013). Ano he esea ch s a ed ha he
join impac o he announcemen o a ing on
pai wise co ela ion is insigni ican (Sensoy e
al., 2016).
In addi ion, he in luence o indi idual a ing
agencies shows ha Moody’s announcemen s
a e mo e in luen ial han o he announcemen s.
Thei indings indica e ha due o changes
in so e eign a ings, shocks wi hin a single
coun y gene ally do no sp ead. In o he wo ds,
he a ea is less a ec ed by sys emic isks.
Acco ding o Ismailescu e al. (2010), by using
a sample o 22 eme ging ma ke s om 2001 o
2009, posi i e a ing announcemen s a e mo e
likely o a ec o he eme ging ma ke s han
nega i e announcemen s. E idence om he
Eu opean deb ma ke wi nessed he signi ican
impac o so e eign a ing news om 1995 o
2010 (A onso e al., 2011).
A ound he Asian inancial c isis, in he
egion on he Asia Paci ic, i was obse ed
ha he esul s o di e en so e eign a ing
168 2021, XXIV, 1
Finance
announcemen s exposed he spillo e
e ec s on he s ock and cu ency ma ke s
(T eepongka una e al., 2012). They ound
ha he cu ency and s ock ma ke s eac ed
signi ican ly di e en ly o a ing announcemen s.
Compa ed o he money ma ke , he s ock
ma ke esponded mo e o a ing news. They
ound clea e idence ha he a ing e en had
a signi ican and asymme ic impac on he
second momen o asse ma ke e u ns unde
no mal ma ke condi ions, while he na ional
ma ke aspec a ec ed he a ing oo p in du ing
he inancial c isis. Bo h posi i e and nega i e
announcemen s o bond and s ock p ices
change on he “ inal” ou e, e en i he changes
a e small (End ess, 2018). Li e al. (2019) is
he excep ion which depa s om he adi ional
e en-s udy app oach in in es iga ing he SCR-
inancial ma ke de elopmen connec ion using
asymme ic modeling (Shin e al., 2014) and
ound he p esence o nonlinea i ies ansla ed
by SCR announcemen (S anda d and Poo ’s,
and Moody’s) o s ock ma ke deploymen in he
Eu opean egion.
D awn on he p emises o con lic ing
li e a u e, sho - e m p emia o e en s udy
app oach, and limi a ions associa ed wi h
econome ic es ima o used in ela ed s udies,
he esea ch ques ion is d awn, wha may be
he impac o so e eign c edi a ings on he
inancial ma ke de elopmen in he Asian
egion? To empi ically answe his ques ion,
his s udy a emp o in es iga e he impac
o SCR announcemen s on Asian inancial
ma ke de elopmen , using obus s anda d
e o clus e ing es ima o s. The choice o Asian
egion is led by 1) he se e al unpleasan
inancial e en s wi hin he egion o ac oss he
globe which subs an ially in ec ed he inancial
ma ke s (Li e al., 2008; Mu cia e al., 2013;
T eepongka una e al., 2012). These e en s
include he global inancial c isis (also called
he sub-p ime mo gage c isis), and he Asian
inancial c isis. The global inancial c isis e e s
o he pe iod o ex eme s ess in global inancial
ma ke s and banking sys ems be ween mid-
2007 and ea ly 2009, du ing which a down u n
in he U.S. housing ma ke was a ca alys o
a inancial c isis ha sp ead om he Uni ed
S a es o he es o he wo ld h ough linkages
in he global inancial sys em, whe e Asian
economies ha e su e ed immensely. While
he Asian inancial c isis was a pe iod o he
inancial c isis ha g ipped much o Eas Asia
and Sou heas Asia beginning in July 1997 and
aised ea s o a wo ldwide economic mel down
Fig. 1: A compa ison o inancial ma ke de elopmen pa e n in Eu ope and Asian
Sou ce: Eu opean Communi ies (2006)
169
1, XXIV, 2021
Finance
due o inancial con agion. Ano he eason o
choose he Asian egion is i s inancial ma ke
cad e ha is ela i ely less de eloped compa ed
o he Eu opean egion (Li e al., 2019). The
scena io is illus a ed in Fig. 1, whe e he blue
cu e shows he inancial ma ke de elopmen
sco e o he Eu opean egion, while he o ange
cu e shows he same o he Asian egion
(a e age o 24 economies/ e i o ies included in
es ima ion). The inancial ma ke de elopmen
sco e and his o ical pa e ns in bo h he egion
illus a e ha Asia is low ela i e o coun e pa .
This may be unde pinned by he middle and
low-income cad e o mos o he economies o
he egion as well as low egula ions pe aining
o he inancial ma ke s. The low pe o mance
can also be linked o he global inancial c isis,
in gene al, and he Asian inancial c isis in
pa icula , whe e he inancial sec o su e ed
mos .
On he o he on , he global inancial c isis
had hi Asian economies wi h unexpec ed
speed and o ce (Kea , 2009). The global
inancial c isis led o a synch onized global
slowdown s a ing in he second hal o 2008,
which ansmi ed h ough ade and inancial
channels, pa icula ly in hose Asian economies
wi h s ong links o in e na ional ma ke s (Ruiz-
B unschwig e al., 2011). The impac o he c isis,
howe e , di e ed among economies depending
on he deg ee o dependency o ex e nal
demand and c edi , whe e, he Republic o
Ko ea, Thailand, Malaysia, Philippines, China,
and India as well as many o he Sou heas
Asian economies, expe ienced a ma ked
slowdown in expo demand ha had impo an
spillo e e ec s in o he es o he economy
(Ruiz-B unschwig e al., 2011). The e emains
signi ican unce ain y in he u u e o Asian
economies ha causes he inancial sys em o
eco e slowly ela i e o Eu ope. While c oss-
bo de spillo e s led o he se e e unde p icing
o a ious ypes o asse s in Asia, he pa icula
illus a ion comes om an examina ion o he
inancial ma ke spillo e s om he Wes o Asia
du ing he global inancial c isis (Fila do, 2011).
The abo e desc ip ion mo i a es he p esen
s udy o conside he Asian egion as a sample
o po en ial analysis.
2. Resea chObjec i e,Me hodology,
and Da a
P ecisely, his s udy in es iga es he impac o
SCR announcemen s on he inancial ma ke
de elopmen o 24 Asian economies/ e i o ies
(selec ed subjec o da a a ailabili y) om 1990
o 2018, using D iscoll K aay’s co a iance
ma ix (D iscoll e al., 1998) ha is obus in
clus e ing s anda d e o . The lis o coun ies/
e i o ies included in he analysis is annexed
in Tab. A1.
2.1 Va iablesandDa a
Aligned wi h Li e al. (2019), he s udy u ilizes
inancial ma ke de elopmen index (FD_FM)
– dependen a iable, o which da a ha is
compiled om IMF S a egy, Policy, and Re iew
Depa men . The index comp ises inancial
ma ke s access (FD_FMA), dep h (FD_FMD),
and e iciency (FD_FME). FD_FMA compiles
da a on “pe cen o ma ke capi aliza ion ou side
o op 10 la ges companies and o al numbe
o issue s o deb (domes ic and ex e nal,
non inancial and inancial co po a ions) pe
100,000 adul s”. FD_FMD compiles da a
on “s ock ma ke capi aliza ion o GDP,
in e na ional deb secu i ies o go e nmen o
GDP, and o al deb secu i ies o inancial and
non inancial co po a ion o GDP”. FD_FME
compiles da a on “s ock ma ke u no e a io
(s ocks aded o capi aliza ion)”. The nume ic
alues assigned by he depa men ange
be ween 0–1, 0 shows he leas de eloped
inancial ma ke s and 1 documen ema kable
de elopmen o he sec o . The index is escaled
o 100 o in e p e a ion pu poses.
SCR is independen a iable, which e lec s
he c edi wo hiness o a coun y o epay
i s deb obliga ions as hey come due. The
weigh anges be ween 0–100, he highes
sco e acknowledges he low de aul isk o
a coun y, while he lowes sco e makes i
exposed o de aul isk. SCR g ades a e
ob ained om S anda d and Poo ’s (SCRS)
and Moody’s (SCRM) pe iodical ou looks
and nume ic weigh s a e assigned based on
ading economics benchma k (Tab. A2). The
Fi ch SCR a e no included in he es ima ion,
because hose a e iden ical o ha o S anda d
and Poo ’s nume ic sco es. The desc ip ion
sligh ly di e s, while nume ic sco es a e alike.
Economic g ow h (E.G.) is measu ed as
he na u al loga i hm o pe capi a GDP, T ade
Openness (TRO) is a sum o expo s, and
impo s p opo iona e o GDP, in la ion (INF)
is ep esen ed by a consume p ice index,
banking de elopmen (D.C.) is deno ed by
domes ic c edi o he p i a e sec o as o GDP,

170 2021, XXIV, 1
Finance
and in es men (INV) is p oxied by g oss ixed
capi al o ma ion a io o GDP. The da a o
E.G., TRO, INF, DC, and INV a e also sou ced
om WDI. All he a iables a e ans o med
in o a na u al loga i hm o e icien es ima ion.
The desc ip i e s a is ics o all a iables a e
p o ided in Tab. 1. We excluded some coun ies
due o missing da a (A ghanis an, A menia,
Bangladesh, Bhu an, B unei, Cambodia,
Maldi es, Myanma , Nepal, No h Ko ea,
Pales ine, S i Lanka, Eas Timo , Geo gia, I an,
I aq, Ky gyzs an, Laos, Macao, Sy ia, Taiwan,
Tajikis an, Tu kmenis an, Uzbekis an, Yemen).
2.2 Econome icSpeci ica ion
Following Li e al. (2019) ou baseline panel
ixed e ec model is speci ied in he ollowing
o mula:
yi = xi θ+εi
Va iable Obs Mean S d. de . Min Max
FD_FM 696 3.352 0.921 0 4.503
FD_FMD 696 3.256 1.039 0 4.533
FD_FMA 696 2.88 1.728 −2.632 4.605
FD_FME 696 3.029 1.458 −1.809 4.605
SCRS 696 4.03 0.404 2.303 4.605
SCRM 696 4.025 0.382 2.708 4.605
EG 696 9.599 1.166 6.852 11.749
INV 696 3.191 0.269 2.367 4.055
INF 696 1.161 1.24 −4.092 7.538
TRO 696 4.267 0.663 2.561 6.041
DC 696 4.279 0.701 2.148 5.981
Sou ce: own
Tab. 1: Desc ip i e s a is ics
Va iable LLC le el Rema ks CIPS le el Rema ks
FD_FM −5.44*** Yes −2.73*** Yes
FD_FMD −4.98*** Yes −2.49*** Yes
FD_FMA −5.29*** Yes −2.66*** Yes
FD_FME −4.59*** Yes −2.59*** Yes
SCRS −2.28** Yes −2.16** Yes
SCRM −7.37*** Yes −3.85*** Yes
EG −7.09*** Yes −3.95*** Yes
INV −9.82*** Yes −4.37*** Yes
INF −8.72*** Yes −4.56*** Yes
TRO −9.11*** Yes −4.34*** Yes
DC −7.51*** Yes −4.02*** Yes
Sou ce: own
No e: LLC = Le in-Lin-Chu uni - oo es ; CIPS = Pesa an’s uni - oo es wi h c oss-sec ional independence.
Tab. 2: Fi s and second-gene a ion uni - oo es esul s
171
1, XXIV, 2021
Finance
whe e he dependen a iable yi is FD_FM, xi
is a (K + 1) × 1 ec o o independen a iables
(SCRi  , INVi  , TROi  , EGi  , INFi  , and DCi ) whose
i s elemen is 1 and θ is (K + 1) × 1 ec o o he
unknown coe icien . i deno es he c oss-sec ional
uni s (“indi iduals”) and deno es ime. All
he ac onyms used in his sec ion a e de ined
in sec ion 2.1. The es ima o used by Li e
al. (2019) is applicable in he case o unique
in eg a ion o de , whe e he unde lying a iables
a e ound ha ing mixed in eg a ion o de (le el,
and i s di e ence), which does no hold in he
p esen case. Tab. 2 inco po a es bo h i s - and
second-gene a ion panel uni - oo es esul s,
which shows ha all he a iables a e s a iona y
a le el. The e o e, con inuing wi h Li e al.
(2019) asymme ic modeling is no sui able.
In addi ion, Li e al. (2019) do no accoun
o common panel da a issues o c oss-
sec ional dependence, he e oskedas ici y,
and se ial co ela ion. The e o e, he scena io
calls o a obus es ima o capable o dealing
wi h s anda d e o clus e ing issues. We i s
es ima e he panel ixed e ec model, and es
i s diagnos ic p ope ies, which e eal ha he
es ima o iola es he s anda d assump ions.
Thus, we op D iscoll K aay’s co a iance
ma ix es ima o (D iscoll e al., 1998), which
o e comes he sho comings a ibu ed o panel
ixed e ec es ima o , pa icula ly, p o ided ha
he esiduals a e independen ly dis ibu ed,
s anda d e o s which a e ob ained by he aid o
his es ima o a e consis en e en i he esiduals
a e he e oscedas ic (Hoechle, 2007). D iscoll
K aay’s ixed-e ec s es ima o is implemen ed
in wo s eps. In he i s s ep all model a iables
zi ∈ {yi , xi } a e wi hin- ans o med as ollows:
z  i = zi –zi +zi ,
whe e:
z  i = Ti
–1∑Ti = i1 zi andzi = (∑Ti)–1∑i ∑ zi
Recognizing ha he wi hin-es ima o
co esponds o he OLS es ima o o he second
s ep han es ima es he ans o med eg ession
model in he ollowing equa ion by D iscoll
K aay’s s anda d e o .
y  i =x΄
i θ+εi
3. Resul s
Fo 24 coun ies/ egions, we pe o m
a eg ession analysis on SCR changes based
on FD_FM and i s ac o s. Reg ession esul s
include c oss-sec ional obse a ions o each
explana o y a iable based on au oco ela ion,
g ouped he e oscedas ici y using a modi ied
Wald es , and adjus ed FD_FM R2 (including
h ee ac o s), shown in Tab. 3. As can be
seen, he adjus ed R2s a e no high, FD_FMA
has a ela i ely lowe adjus ed R2, and he
highes one is o he FD_FMD (i.e., 0.075),
which is signi ican . This demons a es ha he
eg ession a iables do no ha e a ia ions in
he SCR. SCR has a di ec and s ong impac
on he pe o mance o inancial ma ke s excep
o FD_FMA, all o he ac o s a e abo e 50%.
The INV, INF, E.G., and D.C. coe icien s o all
Asian coun ies a e appea ed nega i e excep
o TRO which has be e impac wi h FD_FMD
(i.e., 0.163).
Conside ing he c oss-sec ional dependence,
we can conclude ha he e is sample e idence
ha he sampled Asian coun ies should go
hand in hand wi h he a iables ha p omo e
g ow h. This indica es ha he e a e di e ences
be ween coun ies in he li e a u e. Fo
example, he selec ed Asian coun ies can be
s udied sepa a ely, he eby s imula ing he need
o applying ime-se ies es ima ion. Secondly,
despi e he o ma ion o he Asian g oup o
coun ies, i one economy ollows he sequence
a e ano he , hei in eg a ion may be ha de o
achie e. Tab. 3 shows ha using he baseline
panel ixed e ec model, SCRS posi i ely
explains he FD_FM and i s h ee componen s
(access, dep h, and e iciency). One s anda d
de ia ion posi i e change in SCRS b ings
abou 0.52 s anda d de ia ion imp o emen in
inancial ma ke de elopmen .
In con as , he same change in SCRS
ansla es 0.42, 0.84, 0.76 s anda d de ia ion
imp o emen in inancial ma ke access, dep h,
and e iciency, espec i ely. This implies ha
SCRS helps ci izens o Asian economies
access he inancial se ices o e ed wi hin
each economy, and i also deepens he
inancial se ices and enhances hei e iciency.
Among con ol a iables, TRO appea s o be
a s imula o o inancial ma ke de elopmen
ac oss all models. In con a y, INV, E.G., INF, and
D.C. ha e nega i ely impac ed inancial ma ke
de elopmen , bu coe icien s a e no consis en
ac oss all models. Al hough he indings a e
compa ible wi h he in ui ion, he bo om pa o
Tab. 3 shows diagnos ic s a is ics, which calls
o es ima ing a obus es ima o o co ec /
172 2021, XXIV, 1
Finance
clus e hese issues. In pa icula , Pesa an’s
c oss-sec ional independence es , Woold idge
F- es o au oco ela ion, and Modi ied Wald
es o g oupwise he e oskedas ici y ha e
shown p esence diagnos ic p oblems wi h he
es ima ed ixed-e ec model. Thus, we p oceed
o obus s anda d clus e ing es ima o .
Tab. 4 inco po a es he obus ness esul s
using al e na i e es ima o s such as FGLS
(Beck & Ka z, 1995), Whi e (1980), Roge s
(1993), Fama and MacBe h (1973), and
D iscoll K aay (1998), such es ima o s helped
in co ec ing/clus e ing he s anda d e o
issues which we e diagnosed/ epo ed in
Tab. 3. All hese es ima o s show a signi ican
and posi i e impac o SCRS on FD_FM (being
highes wi h FGLS wi h 0.681, while all o he
also abo e 50%) in he Asian egion. Also, wi h
FGLS, con ol a iable INV appea s posi i e,
and he dependen a iable FD_FM is highe
in esponse o TRO using Roge s’ (i.e., 0.127).
The E.G., INF, and D.C. seem nega i e wi h
all es ima o s wi h di e en magni ude. Thus,
o e all indings a e obus and consis en wi h
Va iables (1) (2) (3) (4)
FD_FM FD_FMA FD_FMD FD_FME
SCRSi
0.519*** 0.422*** 0.844*** 0.757***
(0.115) (0.107) (0.144) (0.191)
INVi
−0.199** −0.041 −0.124 −0.229*
(0.082) (0.076) (0.102) (0.136)
TROi
0.127*** 0.069** 0.163*** 0.148***
(0.034) (0.032) (0.043) (0.057)
EGi
−0.026 −0.017 −0.067** −0.025
(0.022) (0.020) (0.028) (0.037)
INFi
−0.030 −0.011 −0.049** −0.052
(0.019) (0.018) (0.024) (0.032)
DCi
−0.060* −0.085*** −0.074* −0.033
(0.034) (0.031) (0.042) (0.056)
Cons an 1.890*** 1.556*** 0.569 0.529
(0.565) (0.522) (0.706) (0.938)
Obs. 696 696 696 696
C oss-sec ions 24 24 24 24
Adj. R-squa ed 0.061 0.040 0.075 0.041
Fixed e ec Yes Yes Yes Yes
Pos es ima ions
Pesa an’s es o
c oss-sec ional independence 34.122*** 19.535*** 42.65*** 15.72***
Woold idge F (au oco ela ion) 243.61*** 49.42*** 173.29*** 59.319***
Modi ied Wald es
(g oupwise he e oskedas ici y) 5,007.04*** 10,957.72*** 9,830.23*** 120,000***
Sou ce: own
No e: S anda d e o s a e in pa en hesis; *** p < 0.01, ** p < 0.05, * p < 0.1.
Tab. 3: Fixed e ec eg ession esul s
173
1, XXIV, 2021
Finance
he main esul s, which makes ou esul s
epo ed in Tab. 3 alid. Hence, SCRS helps
Asian economies ob ain inancial se ices
p o ided by each economy, he eby imp o ing
e iciency and deepening inancial se ices.
The s udy pe o ms second obus ness
using al e na i e measu e SCRM. Tab. 5 shows
he esul s o D iscoll K aay’s obus es ima o ,
which p oduces consis en esul s o SCRS,
excep o a sligh a ia ion in he explana ion’s
magni ude. Unde his speci ica ion, he SCRM
explains FD_FM by 0.603, comp ised o he
FD_FMA wi h 0.43, FD_FMD by 0.57, and
FD_FME by 0. 51. TRO is posi i ely d i ing he
FD_FM, which needs o be imp o ed u he o
a ac o eign capi al lows o he Asian egion.
This obus ness also shows E.G., INF, and
D.C. nega i e. The explana ion is subs an ial o
coun as aluable inpu o policy implica ions
o Asian equi y ma ke s. These exci ing indings
p o ide use ul insigh s in o in es men and
economic g ow h egula ions. Besides, hese
esul s con i m he impo ance o conside ing
necessa y con ols when s udying o he ac o s.
To be consis en , he s udy checks hi d
obus ness using an al e na i e es ima o
(FGLS, and D iscoll K aay’s) wi h sub-
dimensions o FD_FM, whe e SCRS is aken
as an explana o y a iable. In e es ingly, he
indings a e consis en wi h he main model.
Unde FGLS, one s anda d de ia ion upwa d
mo emen in SCRS explains FD_FMA wi h
0.13, FD_FMD wi h 1.05, FD_FDE wi h 0.75
espec i ely in model 1–3. Simila ly, unde
D iscoll-K aay es ima o , he upwa d mo emen
in SCRS boos s FD_FMA wi h 0.42, FD_FMD
wi h 0.84, and FD_FDE wi h a 0.76 s anda d
de ia ion espec i ely in model 4–5. This
Va iable
(1) (2) (3) (4) (5)
FD_FM FD_FM FD_FM FD_FM FD_FM
FGLS Whi e Roge s Fama-MacBe h D iscoll K aay
SCRSi
0.681*** 0.519*** 0.519*** 1.146*** 0.519***
(0.037) (0.214) (0.115) (0.093) (0.097)
INVi
0.028 −0.199* −0.199** −0.388*** −0.199*
(0.051) (0.108) (0.082) (0.132) (0.115)
TROi
0.120*** 0.127* 0.127*** 0.093** 0.127***
(0.020) (0.073) (0.034) (0.040) (0.029)
EGi
−0.033*** −0.026 −0.026 −0.053 −0.026*
(0.012) (0.034) (0.022) (0.040) (0.014)
INFi
−0.037*** −0.030 −0.030 −0.041 −0.030*
(0.013) (0.021) (0.019) (0.035) (0.017)
DCi
−0.123*** −0.060 −0.060* −0.034 −0.060**
(0.021) (0.083) (0.034) (0.038) (0.026)
Cons an 1.285*** 1.890 1.890*** 0.247 1.890***
(0.245) (1.276) (0.565) (0.767) (0.420)
Obs. 696 696 696 696 696
C oss-sec ions 24 24 24 24 24
R-squa ed 0.061 0.061 0.430
Sou ce: own
No e: S anda d e o s a e in pa en hesis; *** p < 0.01, ** p < 0.05, * p < 0.1.
Tab. 4: Robus ness: al e na i e es ima o s
180 2021, XXIV, 1
Finance
o so e eign c edi a ings announcemen .
Global Finance Jou nal, 18(1), 47–83. h ps://
doi.o g/10.1016/j.g j.2006.10.001
Roge s, W. (1993). Quan ile eg ession
s anda d e o s. S a a Technical Bulle in, 2(9).
Rosa i, N., Bellia, M., Ma os, P. V., & Oli ei a,
V. (2020). Ra ings ma e : Announcemen s
in imes o c isis and he dynamics o s ock
ma ke s. Jou nal o In e na ional Financial
Ma ke s, Ins i u ions and Money, 64, 101166.
h ps://doi.o g/10.1016/j.in in.2019.101166
Ruiz-B unschwig, S., Ca asco, B., Hayashi,
T., & Mukhopadhyay, H. (2011). The Global
Financial C isis: Impac on Asia and Eme ging
Consensus (Sou h Asia Wo king Pape Se ies,
No. 3). Mandaluyon: Asian De elopmen Bank.
Re ie ed om h ps://www.adb.o g/si es/
de aul / iles/publica ion/28663/impac -asia-
and-eme ging-consensus.pd
Sa i, R., Uzunkaya, M., & Hammoudeh, S.
(2013). The Rela ionship Be ween Disagg ega ed
Coun y Risk Ra ings and S ock Ma ke
Mo emen s: An ARDL App oach. Eme ging
Ma ke s Finance and T ade, 49(1), 4–16. h ps://
doi.o g/10.2753/REE1540-496X490101
Sensoy, A., E aslan, V., & E u k, M.
(2016). Do so e eign a ing announcemen s
ha e an impac on egional s ock ma ke co-
mo emen s? The case o Cen al and Eas e n
Eu ope. Economic Sys ems, 40(4), 552–567.
h ps://doi.o g/10.1016/j.ecosys.2016.02.003
Shin, Y., Yu, B., & G eenwood-Nimmo, M.
(2014). Modelling Asymme ic Coin eg a ion
and Dynamic Mul iplie s in a Nonlinea ARDL
F amewo k. In R. C. Sickles, & W. C. Ho ace
(Eds.), Fes sch i in Hono o Pe e Schmid
(pp. 281–314). New Yo k, NY: Sp inge .
Subaşı, F. Ö. (2008). The e ec o
so e eign a ing changes on s ock e u ns and
exchange a es. In e na ional Resea ch Jou nal
o Finance and Economics, 20, 46–54.
Teixei a, J. C. A., Sil a, F., Fe nandes, A., &
Al es, A. (2014). Banks’ capi al, egula ion and
he inancial c isis. No h Ame ican Jou nal o
Economics and Finance, 28, 33–58. h ps://doi.
o g/10.1016/j.naje .2014.01.002
T abelsi, M. A., & Hmida, S. (2019). Impac
o he C edi Ra ing Re ision on he Eu ozone
S ock Ma ke s. T ansi ion S udies Re iew,
26(1), 3–14. h ps://doi.o g/10.14665/1614-
4007-26-1-001
T eepongka una, S., & Wu, E. (2012).
Realizing he ola ili y impac s o so e eign
c edi a ings in o ma ion on equi y and
cu ency ma ke s: E idence om he Asian
Financial C isis. Resea ch in In e na ional
Business and Finance, 26(3), 335–352. h ps://
doi.o g/10.1016/j. iba .2012.01.006
Whi e, H. (1980). A he e oskedas ici y-
consis en co a iance ma ix es ima o
and a di ec es o he e oskedas ici y.
Econo me ica: Jou nal o he Econome ic
Socie y, 48(4), 817–838. h ps://doi.
o g/10.2307/1912934
Xu, Q., Wang, L., & Zhu, Y. (2019). The
E ec o OFDI In ensi y on TFP: The Mode a ing
Role o R&D. T ans o ma ions in Business &
Economics, 18(3C (48C)), 381–393.
Yang, C.-C., Ou, S.-L., & Hsu, L.-C. J. S.
(2019). A Hyb id Mul i-C i e ia Decision-Making
Model o E alua ing Companies’ G een C edi
Ra ing. Sus ainabili y, 11(6), 1506. h ps://doi.
o g/10.3390/su11061506
Zhao, Y. L., Liu, F. Y., Liu, C. Y., Usman,
M., & Du a, K. D. (2020). Readabili y o Annual
Repo and Ine icien In es men : E idence
om Deb Financing. T ans o ma ions in
Business & Economics, 19(1(49)), 166–190.

181
1, XXIV, 2021
Finance
No e: Coun ies/ e i o ies no included in es ima ion a e d opped due o da a una ailabili y/limi ed obse a ions wi h
espec o so e eign c edi a ing announcemen s.
Appendix
S. No. Coun y/ e i o y S. No. Coun y/ e i o y
1 Aze baijan 13 Lebanon
2 Bah ain 14 Malaysia
3China 15 Mongolia
4 Hong Kong SAR, China 16 Oman
5 India 17 Pakis an
6 Indonesia 18 Philippines
7 Is ael 19 Qa a
8 Japan 20 Saudi A abia
9 Jo dan 21 Singapo e
10 Kazakhs an 22 Thailand
11 Sou h Ko ea 23 Uni ed A ab Emi a es
12 Kuwai 24 Vie nam
Sou ce: h ps:// adingeconomics.com/
Tab. A1: Lis o Asian coun ies/ e i o ies
S anda d and Poo ’s Moody’s Desc ip ion T ading economics
sco e
AAA Aaa P ime 100
AA+
AA
AA−
Aa1
Aa2
Aa3 High g ade 95
90
85
A+
A
A−
A1
A2
A3 Uppe medium g ade 80
75
70
BBB+
BBB
BBB−
Baa1
Baa2
Baa3
Lowe medium g ade 65
60
55
BB+ Ba1 Non-in es men g ade 50
BB
BB−
Ba2
Ba3 Specula i e 45
40
B+
B
B−
B1
B2
B3
Highly specula i e 35
30
25
CCC+ Caa1 Subs an ial isks 20
CCC Caa2 Ex emely specula i e 15
CCC−
CC
C
Caa3
Ca
CIn de aul wi h li le p ospec o eco e y 10
5
D/ In de aul 0
Sou ce: h ps:// adingeconomics.com/coun y-lis / a ing
Tab. A2: C edi a ings ou look and sco e