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Firm complexity and credit ratings

Author

Listed:
  • Dang, Man
  • Puwanenthiren, Premkanth
  • Mazur, Mieszko
  • Hoang, Viet Anh
  • Nadarajah, Sivathaasan
  • Nguyen, Thieu Quang

Abstract

This paper examines the effect of firm complexity on credit ratings. Using a sample of U.S. non-financial firms and the state-of-the-art measure of firm complexity, we document a significantly negative relation between firm complexity and credit ratings, suggesting that rating agencies assign significantly lower credit score to more complex firms. Our results remain robust to alternative specifications and various endogeneity checks. Moreover, we find that the negative effect on credit ratings becomes weaker in more transparent and better-governed firms. Finally, we show that the effect is more pronounced during periods of high policy uncertainty. Overall, our paper provides a better understanding of complex firms and highlights the importance of transparency that enhances creditworthiness and mitigates credit risk.

Suggested Citation

  • Dang, Man & Puwanenthiren, Premkanth & Mazur, Mieszko & Hoang, Viet Anh & Nadarajah, Sivathaasan & Nguyen, Thieu Quang, 2025. "Firm complexity and credit ratings," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    • Handle: RePEc:eee:finana:v:104:y:2025:i:pa:s1057521925003540
    DOI: 10.1016/j.irfa.2025.104267
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    More about this item

    Keywords

    Firm complexity; Credit ratings; Information asymmetry; Corporate governance; Policy uncertainty;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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