The real effects of ratings actions: Evidence from corporate asset sales

The real effects of ratings actions: Evidence from corporate asset sales

Dion Bongaerts, Frederik Schlingemann

Series number :

Serial Number: 
666/2020

Date posted :

March 05 2020

Last revised :

March 05 2020
SSRN Share

Keywords

  • Credit ratings • 
  • Asset sales • 
  • asset allocation • 
  • Financial Constraints

We investigate whether and through which channel credit rating downgrades induce corporate restructurings. For a comprehensive sample, we find a strong and robust link between rating actions and subsequent restructuring activity and hypothesize these could be disciplinary (ex-post efficient) or meant to counter tighter financial constraints (ex-post inefficient).

Based on the self-reported restructuring types and the choice of assets sold, we find evidence for rating-induced asset sales aimed to relax financial constraints. We find no evidence of firms addressing inefficiencies in their assets allocations as a result of ratings actions.

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Authors

Real name:
Dion Bongaerts