In this paper we present a model that demonstrates the effect of debt on cost of capital and value for banks with risky assets. Using a static partial equilibrium setting, both in a steady state and steady growth scenario, we derive a bank- specific valuation metric which separately attributes...

Although it is evident that sovereign rating is important for domestic banks, the impact of sovereign rating news on financial company shares has not yet been studied. This paper fills this gap by examining the spillover effect of Euro-zone sovereign rating changes announced by Standard and...