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The effect of corporate governance on firm’s credit ratings: further evidence using governance score in the United States
Author(s) -
Alali Fatima,
Anandarajan Asokan,
Jiang Wei
Publication year - 2012
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2010.00396.x
Subject(s) - corporate governance , credit rating , proxy (statistics) , bond credit rating , accounting , business , index (typography) , sample (material) , financial system , actuarial science , finance , credit risk , credit reference , statistics , chemistry , chromatography , world wide web , computer science , mathematics
We investigate whether corporate governance affects firms’ credit ratings and whether improvement in corporate governance standards is associated with improvement in investment grade rating. We use the Gov‐score of Brown and Caylor (2006), the Gomper’s G index and an entrenchment score of Bebchuk et al. (2009) to proxy for corporate governance. Using a sample of US firms, we find that firms characterized by stronger corporate governance have a significantly higher credit rating, and that this association is accentuated for smaller firms relative to larger firms. We find that an improvement in corporate governance is associated with improvement in bond rating.