Director Networks and Credit Ratings

36 Pages Posted: 3 Apr 2018

See all articles by Bradley W. Benson

Bradley W. Benson

Ball State University - Department of Finance and Insurance

Subramanian R. Iyer

University of New Mexico

Kristopher Kemper

Ball State University

Jing Zhao

Portland State University - The School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 2018

Abstract

We explore the effect of director social capital, directors with large and influential networks, on credit ratings. Using a sample of 11,172 firm‐year observations from 1999 to 2011, we find that larger board networks are associated with higher credit ratings than both firm financial data and probabilities of default predict. Near‐investment grade firms improve their forward‐looking ratings when their board is more connected. Last, we find that larger director networks are more beneficial during recessions, and times of increased financial uncertainty. Our results are robust to controls for endogeneity. Tests confirm that causality runs from connected boards to credit ratings.

Keywords: director networks, social capital, credit ratings, board connectivity

JEL Classification: G24, G32

Suggested Citation

Benson, Bradley W. and Iyer, Subramanian R. and Kemper, Kristopher and Zhao, Jing, Director Networks and Credit Ratings (May 2018). Financial Review, Vol. 53, Issue 2, pp. 301-336, 2018. Available at SSRN: https://ssrn.com/abstract=3154822 or http://dx.doi.org/10.1111/fire.12157

Bradley W. Benson (Contact Author)

Ball State University - Department of Finance and Insurance ( email )

Muncie, IN 47306-0340
United States
765-285-5299 (Phone)
765-285-4314 (Fax)

Subramanian R. Iyer

University of New Mexico ( email )

MSC 05-3090
U of New Mexico
Albuquerque, NM 87131
United States

Kristopher Kemper

Ball State University ( email )

Miller College of Business
Whitinger Business Building
Muncie, IN 47306
United States
765-285-5200 (Phone)

Jing Zhao

Portland State University - The School of Business ( email )

631 SW Harrison St.
Portland, OR 97201
United States

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