Journal of Credit Risk
ISSN:
1744-6619 (print)
1755-9723 (online)
Editor-in-chief: Linda Allen and Jens Hilscher
Need to know
- We find a positive relationship between relative efficiency and credit ratings in the subsequent period after adjusting for absolute efficiency.
- Our results suggest that credit rating agencies consider relative efficiency as a variable that influences a firm’s ability to survive a business cycle.
- After partitioning our samples into investment and non-investment grade firms, whilst we continue to find consistent results for the IG group, we find a negative relationship for NIG firms.
- We suggest higher levels of efficiency by NIG firms can be considered opportunistic or a form of distress and potentially the result of infective decision making.
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.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
