Have Rating Agencies Become More Conservative? Implications for Capital Structure and Debt Pricing

Baghai, Ramin; Servaes, Henri; Tamayo, Ane

doi:10.2139/ssrn.1860998

Cited by 72 publications

(41 citation statements)

References 29 publications

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“…Second, we contribute to the literature on the effects of credit ratings on firm outcomes. This literature shows that credit ratings matter for capital structure decisions (Kisgen ()) and cost of capital (Kisgen and Strahan (), Baghai, Servaes, and Tamayo ()), as well as for firms' real decisions (Sufi (), Tang (), Lemmon and Roberts (), Chernenko and Sunderam (), and Harford and Uysal ()) . However, these studies are subject to omitted variables concerns because changes in ratings are correlated with changes in firm fundamentals.…”

mentioning

confidence: 99%

The Real Effects of Credit Ratings: The Sovereign Ceiling Channel

Almeida

Cunha²,

Ferreira³

et al. 2017

The Journal of Finance

260

168

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We show that sovereign debt impairments can have a significant effect on financial markets and real economies through a credit ratings channel. Specifically, we find that firms reduce their investment and reliance on credit markets due to a rising cost of debt capital following a sovereign rating downgrade. We identify these effects by exploiting exogenous variation in corporate ratings due to rating agencies' sovereign ceiling policies, which require that firms' ratings remain at or below the sovereign rating of their country of domicile.

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mentioning

confidence: 99%

The Real Effects of Credit Ratings: The Sovereign Ceiling Channel

Almeida

Cunha²,

Ferreira³

et al. 2017

The Journal of Finance

260

168

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show abstract

“…(Alp, 2013;Baghai, Servaes, and Tamayo, 2014), we observe a decrease in the proportion of firms rated investment-grade over the years and a corresponding increase in the proportion of firms rated high-yield. Unsurprisingly, the effect is stronger in the aftermath of the 2007-2009 recession period.…”

Section: Datamentioning

confidence: 75%

The Mitigating Effect of Bank Financing on Shareholder Value and Firm Policies Following Rating Downgrades

Bedendo

Siming

2016

SSRN Journal

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To cite this version:Mascia Bedendo, Linus Siming. The mitigating effect of bank financing on shareholder value and firm policies following rating downgrades. Journal of Corporate Finance, Elsevier, 2018Elsevier, , 48, pp.94 -108. 10.1016Elsevier, /j.jcorpfin.2017 The mitigating effect of bank financing on shareholder value and firm policies following rating downgrades AbstractWe document that shareholders of high-yield firms are less sensitive to credit rating downgrades the higher the proportion of bank financing in the firm. This positive effect is linked to firm behavior. In the year after the downgrade, high-yield firms with large bank debt ratios i) need to reduce their leverage less, and ii) display higher capital expenditures, compared to peers that rely relatively more on other sources of debt. Bank financing thus helps alleviate the adverse effects of rating downgrades on shareholders and firms in the high-yield segment. As such, one may view our findings as new evidence of the "specialness" and flexibility of bank debt.

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“…Except for age, Harford and Uysal (2014) employ similar controls. Many of these firm-specific variables also affect credit ratings (see, for example, Baghai, Servaes, and Tamayo, 2014). Thus, any rating effect that persists captures the independent effect of credit ratings beyond these determinants.…”

Section: Credit Rating Levels and Firm Acquisitivenessmentioning

confidence: 99%

“…These variables are likely influenced by the financing of the transaction and the combination of the target and the acquirer. The set of firm characteristics employed in the analyses is similar to the ones used by Baghai, Servaes, and Tamayo (2014). 13 Again, we are not claiming that the reduced likelihood of a downgrade after an acquisition is undeserved for firms with a low rating.…”

Section: 14mentioning

confidence: 99%