The influence of firm efficiency on agency credit ratings

MALI, Dafydd and LIM, Hyoungjoo (2019). The influence of firm efficiency on agency credit ratings. Journal of Credit Risk, 15 (1), 67-102.

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Official URL: https://www.risk.net/journal-of-credit-risk/640380...

Abstract

This paper examines the relationship between relative efficiency and credit ratings using a sample of Korean listed firms and finds a positive relationship in the subsequent period after adjusting for absolute efficiency. The results suggest that credit rating agencies consider relative efficiency as a variable that influences a firm’s ability to survive a business cycle. Interestingly, when we divide our samples into investment- grade and non-investment-grade firms, we find a different relationship. While we continue to find consistent results for the investment-grade group, we find a negative relationship between relative efficiency and credit ratings for non-investment-grade firms. We suggest “higher” levels of efficiency by non-investment-grade firms can be considered opportunistic or a form of distress, and potentially be the result of ineffective decision making. We conjecture that credit rating agencies have the ability to impose penalties of lower credit ratings on firms that engage in such behavior.

Item Type: Article
Uncontrolled Keywords: 1502 Banking, Finance And Investment
Identification Number: https://doi.org/10.21314/JCR.2018.242
SWORD Depositor: Symplectic Elements
Depositing User: Symplectic Elements
Date Deposited: 25 Feb 2019 13:21
Last Modified: 02 Apr 2019 13:31
URI: http://shura.shu.ac.uk/id/eprint/23153

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