 Credit ratings and corporate cash holdings: Evidence from Korea’s corporate reform after the 1997 Asian financial crisisDenis Yongmin Joe and Frederick Dongchuhl Oh Japan and the World Economy, 2018, vol. 45, issue C, 9-18 Abstract: We examine the extent to which credit ratings affect firms’ cash holdings by investigating the circumstances in Korea after the 1997 Asian financial crisis. We find that, due to the costs and benefits associated with different rating levels, credit ratings are a major consideration for corporate cash management. Specifically, firms that become relatively sensitive to rating changes increase their cash holdings, either to improve the chances of an upgrade, or to avoid a downgrade. Furthermore, this effect is driven by chaebol business groups that increasingly rely on external financing that depends on credit ratings following the attenuation of their internal capital markets. Finally, we show that the impact of credit ratings on firms’ cash holdings is more noticeable when firms are more prominent in the market. Keywords: Credit ratings; Cash holdings; 1997 Asian financial crisis; Chaebol (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:45:y:2018:i:c:p:9-18 DOI: 10.1016/j.japwor.2017.11.003 Access Statistics for this article Japan and the World Economy is currently edited by Robert Dekle and Yasushi Hamao More articles in Japan and the World Economy from Elsevier |
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