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Do credit ratings concerns lead to better corporate governance? Evidence from Korea

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  • Do credit ratings concerns lead to better corporate governance? Evidence from Korea
  • Bereskin, Frederick L.; Kim, Bushik; Oh, Frederick Dongchuhl
  • Elsevier


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Title Do credit ratings concerns lead to better corporate governance? Evidence from Korea
Similar Titles
Material Type Articles
Author(English)

Bereskin, Frederick L.; Kim, Bushik; Oh, Frederick Dongchuhl

Publisher

[Amsterdam, Netherlands]:Elsevier

Date 2015-11
Journal Title; Vol./Issue Pacific-Basin Finance Journal:
Pages 51
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Financial Policy
Economy < Economic Conditions
Government and Law < Governance
Holding SSRN

Abstract

We exploit the 1997 Asian financial crisis to show that credit rating concerns affect firms’ corporate governance. We treat the crisis as an exogenous shock that led to improvements in the informativeness of Korea’s credit rating system and find that credit rating concerns affect corporate governance following the crisis, but not before the crisis. Moreover, this effect is concentrated in firms that are in chaebol business groups, consistent with their increased dependence on external financing. Finally, we find that firms that were particularly affected by the reforms demonstrate an increased reliance on debt that is dependent on credit ratings, consistent with our hypothesized effects of this exogenous shock. Our paper presents a novel approach to evaluate whether managers would improve their firms’ corporate governance in response to their credit rating concerns, and highlights the wide-ranging effects of reforms that are implemented due to financial crises.