Corporate Credit Ratings: Selection on Size or Productivity?

37 Pages Posted: 28 Nov 2014 Last revised: 13 Oct 2016

See all articles by Sasan Bakhtiari

Sasan Bakhtiari

Australian Department of Industry; Crawford School, ANU

Date Written: October 12, 2016

Abstract

Productivity growth is largely driven by the reallocation of resources from less productive firms to more productive ones. Whether corporate credit ratings function in a supportive role is, however, unknown. I use a panel of US manufacturing firms matched to their S&P ratings over the years 1980 to 2009 to investigate. Overall, I find that a typical investment-grade firm is either medium sized and very productive or very large and relatively unproductive. As per evidence, the role of the credit rating system can be best described as disruptive to the reallocation process. These findings are robust to various specification tests and do not seem to be specific to the recent history; the practice only came under spotlight in the recent decade.

Keywords: Productivity, Size, Credit Rating, Rating Agencies, Resource Reallocation

JEL Classification: D24, G24, L25, L6

Suggested Citation

Bakhtiari, Sasan, Corporate Credit Ratings: Selection on Size or Productivity? (October 12, 2016). Available at SSRN: https://ssrn.com/abstract=2531223 or http://dx.doi.org/10.2139/ssrn.2531223

Sasan Bakhtiari (Contact Author)

Australian Department of Industry ( email )

341 George Street
Sydney, NSW 2000
Australia

HOME PAGE: http://sites.google.com/site/sasanbakhtiari

Crawford School, ANU ( email )

7 Liversidge Street
Lennox Crossing
Canberra, ACT 0200
Australia

HOME PAGE: http://sites.google.com/site/sasanbakhtiari

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