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Credit ratings and firm life-cycle

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  • Blomkvist, Magnus
  • Löflund, Anders
  • Vyas, Hitesh

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%.

Suggested Citation

  • Blomkvist, Magnus & Löflund, Anders & Vyas, Hitesh, 2021. "Credit ratings and firm life-cycle," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s1544612319312747
    DOI: 10.1016/j.frl.2020.101598
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    References listed on IDEAS

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    Cited by:

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    2. Habib, Ahsan & Ranasinghe, Dinithi, 2022. "Labor investment efficiency and credit ratings," Finance Research Letters, Elsevier, vol. 48(C).

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    More about this item

    Keywords

    Credit ratings; Life-cycle; Corporate finance; Dynamic resource based view;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • 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

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