Managerial Ability and Credit Ratings

Kimberly J. Cornaggia, Gopal V. Krishnan, Changjiang Wang

Research output: Contribution to journalArticlepeer-review

19 Scopus citations

Abstract

We test whether credit rating analysts consider managerial ability as a credit risk factor and find that higher-ability managers obtain more favorable credit ratings. Controlling for past performance, these results suggest that managerial ability is itself a significant credit rating factor. Cross-sectional analyses indicate that managerial ability is beneficial specifically in firms facing financial or competitive pressure. We find that high-ability managers mitigate the adverse impact on ratings of other credit risk factors including negative earnings and low interest coverage. Our results contribute to a growing literature documenting economic benefits to hiring and retaining high-quality management.

Original languageEnglish (US)
Pages (from-to)2094-2122
Number of pages29
JournalContemporary Accounting Research
Volume34
Issue number4
DOIs
StatePublished - Dec 1 2017

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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