IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v90y2026ics1544612325025978.html

The impact of credit rating deviation on employee compensation levels: Evidence from South Korea

Author

Listed:
  • Kim, Natalie Kyung Won
  • Kang, Dongchang
  • Kwon, Sewon
  • Yeom, Jimin

Abstract

We examine whether firms adjust employee compensation in response to credit rating deviation (CRD), defined as the gap between model-implied ratings based on financials and agency-assigned ratings that incorporate qualitative judgment. Using 2447 firm-year observations of Korean listed firms from 2006 to 2024, we find a positive association between CRD and employee pay, driven primarily by unfavorable deviations where assigned ratings fall below model expectations. This effect is concentrated in firms with weak board monitoring. These wage cuts do not improve subsequent performance, suggesting that managers exploit adverse external assessments to justify wage restraint. Our findings show that CRD influences internal pay-setting and highlight the role of governance in mediating firms’ responses to external evaluations.

Suggested Citation

  • Kim, Natalie Kyung Won & Kang, Dongchang & Kwon, Sewon & Yeom, Jimin, 2026. "The impact of credit rating deviation on employee compensation levels: Evidence from South Korea," Finance Research Letters, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:finlet:v:90:y:2026:i:c:s1544612325025978
    DOI: 10.1016/j.frl.2025.109348
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612325025978
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2025.109348?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:90:y:2026:i:c:s1544612325025978. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.