Do Credit Ratings Concerns Lead to Better Corporate Governance? Evidence from Korea

51 Pages Posted: 30 Jun 2013 Last revised: 25 Oct 2016

See all articles by Frederick L. Bereskin

Frederick L. Bereskin

University of Missouri

Bushik Kim

Korea Institute of Finance

Frederick Dongchuhl Oh

Korea Advanced Institute of Science and Technology

Date Written: October 10, 2015

Abstract

We exploit the 1997 Asian financial crisis to show that credit rating concerns affect firms’ corporate governance. We treat the crisis as an exogenous shock that led to improvements in the informativeness of Korea’s credit rating system and find that credit rating concerns affect corporate governance following the crisis, but not before the crisis. Moreover, this effect is concentrated in firms that are in chaebol business groups, consistent with their increased dependence on external financing. Finally, we find that firms that were particularly affected by the reforms demonstrate an increased reliance on debt that is dependent on credit ratings, consistent with our hypothesized effects of this exogenous shock. Our paper presents a novel approach to evaluate whether managers would improve their firms’ corporate governance in response to their credit rating concerns, and highlights the wide-ranging effects of reforms that are implemented due to financial crises.

Keywords: Credit Ratings, Corporate Governance, 1997 Asian Financial Crisis, Chaebol

JEL Classification: G24, G34, G01

Suggested Citation

Bereskin, Frederick L. and Kim, Bushik and Oh, Frederick Dongchuhl, Do Credit Ratings Concerns Lead to Better Corporate Governance? Evidence from Korea (October 10, 2015). Pacific-Basin Finance Journal, Vol. 35B, pp. 592-608, 2015. Available at SSRN: https://ssrn.com/abstract=2286697 or http://dx.doi.org/10.2139/ssrn.2286697

Frederick L. Bereskin (Contact Author)

University of Missouri ( email )

Columbia, MO 65203
United States

Bushik Kim

Korea Institute of Finance ( email )

4-1 Myung-dong 1-ga
Seoul 100-021
United States

Frederick Dongchuhl Oh

Korea Advanced Institute of Science and Technology ( email )

KAIST College of Business
85 Hoegi-Ro, Dongdaemoon-Gu
Seoul, 130-722
Korea

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