The Real Effects of Ratings Actions: Evidence from Corporate Asset Sales

Dion Bongaerts () and Frederik Schlingemann ()
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Dion Bongaerts: Rotterdam School of Management, Erasmus University, 3062 PA Rotterdam, Netherlands
Frederik Schlingemann: Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania 15260; European Corporate Governance Institute, 1000 Brussels, Belgium

Management Science, 2024, vol. 70, issue 3, 1505-1528

Abstract: We investigate whether and through which channel credit rating downgrades induce corporate restructurings. For a comprehensive sample, we find a strong and robust link between rating actions and subsequent restructuring activity and hypothesize these could be disciplinary (ex post efficient) or meant to counter tighter financial constraints (ex post inefficient). Based on the self-reported restructuring types and the choice of assets sold, we find evidence for rating-induced asset sales aimed to relax financial constraints. We find no evidence of firms addressing inefficiencies in their assets allocations as a result of rating actions.

Keywords: credit ratings; asset sales; asset allocation; financial constraints (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:3:p:1505-1528

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