Market implied ratings and financing constraints: evidence from US firms

Tsoukas, S. and Spaliara, M.E. (2014) Market implied ratings and financing constraints: evidence from US firms. Journal of Business Finance and Accounting, 41(1-2), pp. 242-269. (doi:10.1111/jbfa.12062)

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Publisher's URL: http://dx.doi.org/10.1111/jbfa.12062

Abstract

Financing constraints have been found to play an important role in several aspects of firm behavior, but no attention has been given to their effects on credit ratings. In this paper we analyze a unique and comprehensive data-set for US firms rated by Fitch over the period 2001--2007. We employ Fitch's market implied ratings derived from bond and equity prices. The analysis finds evidence that financial variables are more important in predicting credit ratings for firms likely to face financing constraints. We conclude that the financing constraint is an important dimension in the market implied ratings process. Our findings are of relevance to managers, investors and rating agencies seeking to understand the mechanism through which financing constraints affect credit ratings.

Item Type:Articles
Keywords:Financing constraints, credit ratings, ordered probit
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Tsoukas, Professor Serafeim and Spaliara, Dr Marina Eliza
Authors: Tsoukas, S., and Spaliara, M.E.
Subjects:H Social Sciences > HG Finance
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Business Finance and Accounting
Publisher:Blackwell Publishing
ISSN:0306-686X
ISSN (Online):1468-5957
Published Online:24 February 2014
Copyright Holders:Copyright © 2014 The Authors
First Published:First published in Journal of Business Finance and Accounting 41(1-2):242-269
Publisher Policy:Reproduced under a Creative Commons License

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