Publication details
FIRM CREDIT RATING CHANGES, CAPITAL STRUCTURE, AND THE ASYMMETRIC MODERATING ROLE OF DEBT CAPACITY AND FINANCIAL CONSTRAINTS
| Authors | |
|---|---|
| Year of publication | 2025 |
| Type | Article in Periodical |
| Magazine / Source | Journal of Business Economics and Management |
| MU Faculty or unit | |
| Citation | |
| web | https://journals.vilniustech.lt/index.php/JBEM/article/view/25316 |
| Doi | https://doi.org/10.3846/jbem.2025.25316 |
| Keywords | credit rating changes; debt capacity; financial constraints; capital structure; profitability; debt-to-total assets |
| Attached files | |
| Description | This study analyzes how debt capacity and financial constraints impact credit rating changes. Using a comprehensive sample of European companies, we analyze rating upgrades and downgrades separately to allow us to uncover whether the effects differ. Our results show that only one of the four commonly used proxies for debt capacity can explain credit rating changes. Specifically, we find that debt capacity can influence both rating upgrades and downgrades, but financial constraints or profitability can only impact rating downgrades. Our results are robust to various model specifications. The Monte Carlo simulation results reveal that uncertainty related to factors causing rating upgrades increases sharply when debt exceeds 30% of total assets. Similarly, when debt exceeds 50% of total assets, uncertainty related to rating downgrades surges. |