Does good governance matter to debtholders? Evidence from the credit ratings of Japanese firms |
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| Institution: | 1. Department of Banking and Finance, Monash University, Po Box 197, Caulfield East, VIC 3145, Australia;2. Department of Econometrics and Business Statistics, Monash University, Australia;1. Department of Accounting, National Chung Hsing University, 250 Kuo Kuang Rd., Taichung, Taiwan;2. College of Business, Feng Chia University, 100, Wenhwa Rd., Seatwen, Taichung, Taiwan;1. School of Business and Economics, Loughborough University, UK;2. Faculty of Commerce, Cairo University, Egypt;3. Management School, Sheffield University, UK;4. School of Business & Technology, Excelsior College, United States;1. HEC Paris, France;2. Schulich School of Business, York University, Canada;3. Virginia Polytechnic Institute and State University, United States;1. Lerner College of Business & Economics, University of Delaware, Newark, DE 19716, USA;2. Korea University Business School, Korea University, 145 Anam-Ro, Seongbuk-Gu, Seoul 136-701, South Korea;3. KAIST College of Business, Korea Advanced Institute of Science and Technology, 85 Hoegi-Ro, Dongdaemoon-Gu, Seoul 130-722, South Korea |
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| Abstract: | Consistent with existing evidence based on US firms, we show that good governance is associated with higher credit ratings. The most significant variables are institutional ownership and disclosure quality. This finding suggests that active monitoring (by large shareholders) and lower information asymmetry (through better disclosures) mitigate agency conflicts and reduce the risk to debtholders. Credit ratings are also found to increase with board size, consistent with a moderation effect in large decision-making groups. As a rule, firms are expected to benefit from better governance by being able to access funding at a lower cost and in larger amounts. |
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