Does good governance matter to debtholders? Evidence from the credit ratings of Japanese firms
- Publication Type:
- Journal Article
- Aman, Hiroyuki and Nguyen, Pascal 2013, 'Does good governance matter to debtholders? Evidence from the credit ratings of Japanese firms', Elsevier, vol. 29, no. 1, pp. 14-34.
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Consistent with existing evidence based on US firms, we show that good governance is associated with higher credit ratings. The most significant variables are institutional ownership and disclosure quality. This finding suggests that active monitoring (by large shareholders) and lower information asymmetry (through better disclosures) mitigate agency conflicts and reduce the risk to debtholders. Credit ratings are also found to increase with board size, consistent with a moderation effect in large decision-making groups. As a rule, firms are expected to benefit from better governance by being able to access funding at a lower cost and in larger amounts.
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