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

70 Pages Posted: 10 Nov 2016 Last revised: 2 Apr 2020

See all articles by Dion Bongaerts

Dion Bongaerts

Erasmus University Rotterdam (EUR) - Finance

Frederik P. Schlingemann

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

Date Written: March 5, 2020


Credit rating actions could discipline management to improve asset allocations, but may also trigger corporate responses to alleviate financial constraints. We investigate which effect (if any) dominates, using corporate asset sales as a laboratory. Our empirical tests are guided by a novel model that can generate both effects and yields several predictions to distinguish the two channels. We find empirically that firms conduct more asset sales following downgrades. Our model and a novel placebo test mitigate omitted variables concerns regarding this result. Further tests provide evidence that strongly points towards a financial constraints effect and hardly to a discipline effect.

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

JEL Classification: G34

Suggested Citation

Bongaerts, Dion and Schlingemann, Frederik Paul, The Real Effects of Ratings Actions: Evidence from Corporate Asset Sales (March 5, 2020). European Corporate Governance Institute – Finance Working Paper No. 666/2020, Available at SSRN: or

Dion Bongaerts

Erasmus University Rotterdam (EUR) - Finance ( email )

Burgemeester Oudlaan 50
Rotterdam, 3062PA
+31 (0) 10 40 82 790 (Phone)
+31 (0) 10 40 89 017 (Fax)


Frederik Paul Schlingemann (Contact Author)

University of Pittsburgh - Finance Group ( email )

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

European Corporate Governance Institute (ECGI) ( email )

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1000 Brussels

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