Do Firms Manage Their Credit Ratings? Evidence From Rating-Based Contracts

Accounting Horizons, Forthcoming

45 Pages Posted: 20 May 2019 Last revised: 13 Jul 2022

See all articles by Eliza Xia Zhang

Eliza Xia Zhang

University of Washington Tacoma; University of Washington, Tacoma

Date Written: May 21, 2018


This paper examines whether firms with rating-based performance-priced loan contracts (PPrating firms) manage cash flow from operations (CFO) and accruals to obtain better firm credit ratings. I find that for PPrating firms, both CFO management and accruals management are positively associated with firm credit ratings. In the cross-section, the relation of CFO management and accruals management with firm ratings is less pronounced when there is a larger benefit associated with inflated firm ratings. These results support the view that financial statement manipulation helps PPrating firms achieve more favorable ratings; when these firms are subject to more stringent rating-agency monitoring, such manipulation proves less effective.

Keywords: rating-based debt contracting; cash flow management; accruals management; firm credit ratings

JEL Classification: G18, G20, G28

Suggested Citation

Zhang, Eliza Xia and Zhang, Eliza Xia, Do Firms Manage Their Credit Ratings? Evidence From Rating-Based Contracts (May 21, 2018). Accounting Horizons, Forthcoming, Available at SSRN:

Eliza Xia Zhang (Contact Author)

University of Washington, Tacoma

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Tacoma, WA 98402-3100
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University of Washington Tacoma ( email )

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