Corporate financing and anticipated credit rating changes

Hung, Chi-Hsiou D.; Banerjee, Anurag N.; Meng, Qingrui

doi:10.1007/s11156-016-0571-3

Corporate financing and anticipated credit rating changes

Hung, Chi-Hsiou D.; Banerjee, Anurag N.; Meng, Qingrui

Authors

Chi-Hsiou D. Hung

Professor Anurag Banerjee a.n.banerjee@durham.ac.uk
Professor

Qingrui Meng

Abstract

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.

Citation

Hung, C. D., Banerjee, A. N., & Meng, Q. (2017). Corporate financing and anticipated credit rating changes. Review of Quantitative Finance and Accounting, 48(4), 893-915. https://doi.org/10.1007/s11156-016-0571-3

Journal Article Type	Article
Acceptance Date	Mar 30, 2016
Online Publication Date	Apr 15, 2016
Publication Date	May 1, 2017
Deposit Date	Apr 5, 2016
Publicly Available Date	Apr 15, 2017
Journal	Review of Quantitative Finance and Accounting
Print ISSN	0924-865X
Electronic ISSN	1573-7179
Publisher	Springer
Peer Reviewed	Peer Reviewed
Volume	48
Issue	4
Pages	893-915
DOI	https://doi.org/10.1007/s11156-016-0571-3
Public URL	https://durham-repository.worktribe.com/output/1415377