재무연구 제 권 호 (2019년 5월)
Asian Review of Financial Research, Vol., No..
pp.1562~1588
pp.1562~1588
The impact of Credit rating on firm’s under-investment through Capital expenditure and M&A : Korean evidence
Seonhyeon Kim Business School, Korea University, Republic of Korea
Chang-ki Kim Business School, Korea University, Republic of Korea
We find that as firm’s rating levels improve, managers tend to increase capial expenditure but this effect is reduced or changed negative within near BBB. These results do not depend on financial constraints, but rather because managers are concerned about a credit rating downgrade. Furthermore their underinvesetment affect the quality of their investment. In mergers and acquisitons case, the bidder at or near BBB grade have greater cumulative average returns. Therefore, we conclude that managers display different behavior depending on their current credit rating and that this can affect the quantity and quality of their investments.
Seonhyeon Kim
Chang-ki Kim
We find that as firm’s rating levels improve, managers tend to increase capial expenditure but this effect is reduced or changed negative within near BBB. These results do not depend on financial constraints, but rather because managers are concerned about a credit rating downgrade. Furthermore their underinvesetment affect the quality of their investment. In mergers and acquisitons case, the bidder at or near BBB grade have greater cumulative average returns. Therefore, we conclude that managers display different behavior depending on their current credit rating and that this can affect the quantity and quality of their investments.
credit rating,Manage for credit ratings,underinvestment,capital expenditure,mergers and acquisitions
