Credit ratings and firm life-cycle

Magnus Blomkvist, Anders Löflund and Hitesh Vyas

Finance Research Letters, 2021, vol. 39, issue C

Abstract: Credit ratings display an inverse U-shaped relation over the corporate life-cycle. Firms’ likelihood to obtain a rating initially increases over the life-cycle as reputation increases and asymmetric information is reduced. As investment opportunities diminish during the shakeout and decline phases the benefit of having a rating decreases. The economic effect is substantial: transitioning from the introduction to the growth phase increases the rating likelihood from 6.7% to 30%.

Keywords: Credit ratings; Life-cycle; Corporate finance; Dynamic resource based view (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:39:y:2021:i:c:s1544612319312747

DOI: 10.1016/j.frl.2020.101598

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