The Real Effects of Ratings Actions: Evidence from Corporate Asset Sales

70 Pages Posted: 10 Nov 2016 Last revised: 8 Jul 2022

See all articles by Dion Bongaerts

Dion Bongaerts

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Frederik P. Schlingemann

University of Pittsburgh - Finance Group; European Corporate Governance Institute (ECGI)

Date Written: July 5, 2022

Abstract

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.

Keywords: Credit ratings, asset sales, asset allocation, financial constraints

JEL Classification: G34

Suggested Citation

Bongaerts, Dion and Schlingemann, Frederik Paul, The Real Effects of Ratings Actions: Evidence from Corporate Asset Sales (July 5, 2022). Accepted at Management Science, European Corporate Governance Institute – Finance Working Paper No. 666/2020, Available at SSRN: https://ssrn.com/abstract=2866484 or http://dx.doi.org/10.2139/ssrn.2866484

Dion Bongaerts

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Frederik Paul Schlingemann (Contact Author)

University of Pittsburgh - Finance Group ( email )

368A Mervis Hall
Pittsburgh, PA 15260
United States
(412) 648 1847 (Phone)
(412) 648 1693 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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