Asset redeployability and credit ratings

Ahsan Habib and Dinithi Ranasinghe

Finance Research Letters, 2022, vol. 50, issue C

Abstract: We examine the relationship between asset redeployability and credit ratings. Firms with more redeployable assets enjoy higher levels of liquidity, and hence are resilient to unexpected liquidity shocks. Such benefits increase the creditworthiness of firms with more redeployable assets, and so they are perceived favorably by rating agencies. High-asset-redeployability firms also suffer from less information asymmetry, which likely increases their credit ratings. We therefore posit a positive relationship between asset redeployability and credit ratings and find supporting evidence for a sample of US firms. Our results remain robust to possible endogeneity concerns. We also find that tax avoidance and information asymmetry mediate the relationship between asset redeployability and credit ratings.

Keywords: Asset redeployability; Credit ratings; Tax avoidance; Information asymmetry (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322004780

DOI: 10.1016/j.frl.2022.103295

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