Journal article

Are credit rating agencies still relevant? Evidence on certification from Moody's credit watches

N MASSOUD, Hamdi Driss, undefined Roberts

Journal of Corporate Finance | Elsevier BV | Published : 2019

Abstract

We show that a rating agency can provide certification for corporate borrowers through the mechanism of a credit watch with direction downgrade. We find that firms with watch-preceded rating confirmations (firms for which original ratings are confirmed after a credit watch warning) experience an increase in their long-term debt financing and ramp up their investment activities following the credit watch period. These firms are able to maintain their profitability from before to after the watch period, while we find no such evidence for firms with watch-preceded rating downgrades. Among firms with confirmed ratings, those with less access to credit markets obtain more long-term debt financing..

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University of Melbourne Researchers