The effect of corporate governance on firm's credit ratings: Further evidence using governance score in the United States

Fatima Alali, Asokan Anandarajan, Wei Jiang

Research output: Contribution to journalArticlepeer-review

20 Scopus citations

Abstract

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 (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.

Original languageEnglish (US)
Pages (from-to)291-312
Number of pages22
JournalAccounting and Finance
Volume52
Issue number2
DOIs
StatePublished - Jun 2012

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics, Econometrics and Finance (miscellaneous)

Keywords

  • Changes in corporate governance
  • Changes in credit ratings
  • Corporate governance
  • Credit ratings

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