Bank financing and credit ratings. Issue 12 (11th July 2020)

• Record Type: Journal Article
• Authors: Bedendo, Mascia; Siming, Linus
• Is Part Of: Applied economics letters. Volume 27:Issue 12(2020)
• Page Start: 965
• Page End: 970
• Publication Date: 2020-07-11
• Subjects: Credit ratings -- credit rating methodologies -- debt structure -- credit quality; G20 -- G21; Economics -- Periodicals; Economics, Mathematical -- Periodicals; 330
• DOI: 10.1080/13504851.2019.1649358
• Languages: English
• ISSNs: 1350-4851

Abstract

ABSTRACT: By looking at a sample of firms rated by S&P, we study the extent to which the mix between bank financing and other sources of debt affects corporate credit ratings. We find that S&P penalizes firms of high credit quality that use relatively more bank debt compared to market debt. Instead, debt composition does not seem to matter when rating risky firms. We conclude that managers of firms of high credit quality should have relatively low (high) recourse of bank financing (public debt) from a credit ratings perspective.