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Corporate financing and anticipated credit rating changes.

Hung, Chi-Hsiou D. and Banerjee, Anurag N. and Meng, Qingrui (2017) 'Corporate financing and anticipated credit rating changes.', Review of quantitative finance and accounting., 48 (4). pp. 893-915.


Firm circumstances change but rating agencies may not make timely revisions to their ratings, thereby increasing information asymmetry between firms and the market. We examine whether firms time the securities market before a credit rating agency publicly reveals its decision to change a firm’s credit rating. Using quarterly data, we show that firms adjust their financing structures before credit rating downgrades are publicly revealed. Specifically, firms on average increase their debt financing by 1.29 % before the disclosure of a rating downgrade, and this increase is due to the issuance of debt rather than the repurchase of equity. In contrast, firms do not take significant financing actions before credit rating upgrades.

Item Type:Article
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Date accepted:30 March 2016
Date deposited:05 April 2016
Date of first online publication:15 April 2016
Date first made open access:15 April 2017

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