Credit ratings and firm life-cycle

Magnus Blomkvist (mblomkvist@audencia.com), Anders Löflund and Hitesh Vyas
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Magnus Blomkvist: Audencia Business School
Anders Löflund: Hanken School of Economics

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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%.

Date: 2021-03-01
New Economics Papers: this item is included in nep-bec
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Published in Finance Research Letters, 2021, 36 (March), pp.101598. ⟨10.1016/j.frl.2020.101598⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02887246

DOI: 10.1016/j.frl.2020.101598

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