Does market risk predict credit risk? An analysis of firm risk sensitivity, evidence from South Korea

LIM, Hyoung-joo and MALI, Dafydd (2018). Does market risk predict credit risk? An analysis of firm risk sensitivity, evidence from South Korea. Asia-Pacific Journal of Accounting & Economics, 25 (1-2), 235-252.

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Abstract

We empirically test the relation between stock volatility (market risk) and credit ratings (credit risk) using KRX listed firms. We find a negative relation between stock volatility and credit ratings. The results suggest that as stock price volatility increases, a firm is more likely to experience a credit rating decrease. After dividing our sample into investment and non-investment grade groups, we find the relation between volatility and a credit rating decrease diminishes in the investment grade sample compared to the non-investment grade sample. Overall, we find investment grade firms are more likely to absorb shocks associated with speculative investment/divestment compared to price sensitive non-investment grade firms.

Item Type:	Article
Identification Number:	https://doi.org/10.1080/16081625.2016.1268060
Page Range:	235-252
Depositing User:	Dafydd Mali
Date Deposited:	10 Jul 2018 11:46
Last Modified:	18 Mar 2021 11:44
URI:	https://shura.shu.ac.uk/id/eprint/21882

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