Does Ownership Structure Improve Credit Ratings?

AlHares, A., Ntim, C.G., King, D., & Byrne, R. (2018). ‘Does Ownership Structure Improve Credit Ratings?’, Journal of Governance and Regulation, 7(2), 22-33.

12 Pages Posted: 12 May 2018

See all articles by Aws Alhares

Aws Alhares

University of Huddersfield

Collins G. Ntim

University of Southampton Business School, UK; University of Southampton

David King

College of the North Atlantic - Qatar

Date Written: April 27, 2018

Abstract

This study seeks to examine the impact of Block Ownership structure on Credit Ratings in OECD countries. This research seeks to contribute to the extant literature by exploring the effects of Corporate Governance (CG) mechanisms on corporate credit ratings. The study uses a panel data of 200 companies from Anglo American and European countries between 2010 and 2014. The ordinary least square regression is used to examine the relationships. Additionally, to alleviate the concern of potential endogeneity, we use fixed effect regression, two-stage least squares using instrumental variables. The results show there is a negative and significant relationship between block ownership and credit ratings, with a greater significance among Anglo American countries than among European countries. The rationale for this is that Anglo-American system gives preferential treatment to individual shareholders and its accounting tradition leads to a decline in risk and increase in credit ratings. The result is consistent with the multi-theoretical framework predictions derived from the agency and stewardship theories. Future research could investigate credit ratings using other credit rating agencies, selecting a larger sample that includes small, mid-size and large companies. This paper extends, as well as contributes to extant CG literature by offering new evidence on the effect of block ownership on credit ratings between two different traditions. This will be explored by employing firm-level CG mechanisms by accounting for control variables. The findings will help regulators and policymakers in OECD countries in evaluating the adequacy of current CG reforms to prevent management misconduct and scandals.

Keywords: Credit Ratings, Corporate Governance, Audit Committee, OECD, Block Ownership, Standard & Poor’s, Culture, Legal System

JEL Classification: G38

Suggested Citation

Alhares, Aws and Ntim, Collins G. and King, David, Does Ownership Structure Improve Credit Ratings? (April 27, 2018). AlHares, A., Ntim, C.G., King, D., & Byrne, R. (2018). ‘Does Ownership Structure Improve Credit Ratings?’, Journal of Governance and Regulation, 7(2), 22-33. , Available at SSRN: https://ssrn.com/abstract=3170050

Aws Alhares

University of Huddersfield ( email )

Queensgate
Huddersfield, HD1 3DH
United Kingdom

Collins G. Ntim (Contact Author)

University of Southampton Business School, UK ( email )

Southampton Business School
Highfield
Southampton, England SO17 IBJ
United Kingdom
+44 (0) 238059 4285 (Phone)
+44 (0) 238059 3844 (Fax)

HOME PAGE: http://www.southampton.ac.uk/business-school/about/staff/cgn1n11.page

University of Southampton ( email )

Southampton, SO17 1BJ
United Kingdom

David King

College of the North Atlantic - Qatar ( email )

P.O. Box 24449
68 Al Tarafa, Duhail North
Doha
Qatar

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