Credit rating as a mechanism for capital structure optimization: Empirical evidence from panel data analysis

Artikel

This paper empirically examines the significance of credit ratings for optimal capital structure decisions. Non-financial Asian listed companies, evaluated by Standard and Poor's, are selected from 2000 to 2016. Panel data analysis with pooled ordinary least square (OLS), fixed effect (FE), and generalized method of moment (GMM) estimation techniques are employed to test the effect of each credit rating scale on capital structure choices. For the problem of heteroskedasticity in OLS, the heteroskedastic white consistent variance is used for the best fit of the model. Findings of all estimation techniques show that the relationship between credit rating scales and leverage ratio is a non-linear inverted U shape. High- and low-rated companies have a low level of leverage, whereas mid-rated companies have a high level of leverage. It is evident that costs and benefits of each rating scale have a substantial effect on the behavior of a company's choices for optimal capital structure. The study suggests that policymakers, investors, and financial officers should consider credit rating as an important measure of financing decisions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: International Journal of Financial Studies ; ISSN: 2227-7072 ; Volume: 6 ; Year: 2018 ; Issue: 1 ; Pages: 1-14 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Empirical Analysis ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: credit rating ; leverage ; capital structure ; Asian markets

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Sajjad, Faiza ; Zakaria, Muhammad
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2018

Further information

• DOI: doi:10.3390/ijfs6010013
• Handle: http://hdl.handle.net/10419/195679
• Last update: 10.03.2025, 11:46 AM CET