The Effect of Corporate Governance on Firm’s Credit Ratings: Further Evidence Using Governance Score in the United States

22 Pages Posted: 21 Apr 2012

See all articles by Fatima Alali

Fatima Alali

California State University, Fullerton

Asokan Anandarajan

New Jersey Institute of Technology

Wei Jiang

California State University, Fullerton

Date Written: June 2012

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 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.

Keywords: Corporate governance, Credit ratings, Changes in corporate governance, Changes in credit ratings

Suggested Citation

Alali, Fatima A and Anandarajan, Asokan and Jiang, Wei, The Effect of Corporate Governance on Firm’s Credit Ratings: Further Evidence Using Governance Score in the United States (June 2012). Accounting & Finance, Vol. 52, Issue 2, pp. 291-312, 2012, Available at SSRN: https://ssrn.com/abstract=2042884 or http://dx.doi.org/10.1111/j.1467-629X.2010.00396.x

Fatima A Alali (Contact Author)

California State University, Fullerton ( email )

800 N State College St
Fullerton, CA 92831
United States

Asokan Anandarajan

New Jersey Institute of Technology ( email )

University Heights
School of Management
Newark, NJ 07102

Wei Jiang

California State University, Fullerton

800 N State College St
Fullerton, CA 92831
United States

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