Credit rating and managerial behavior in investment decision making: Evidence from the Korean market

초록

This study finds, using data from Korea that, as rating levels for corporate bonds improve, firms tend to increase capital investment, but this positive relationship is attenuated at or near-BBB ratings. At the upper end of speculative grade, there is an incentive to make active investment decisions because of the opportunity to be upgraded to investment grade. This paper found that BB＋ firms show such behavior. Conversely, at the lower end of investment grade, there is an incentive to make conservative investment decisions due to the threat of a downgrade to speculative grade. Thus, the threat of a downgrade to speculative-grade provides managers conservative investment decision incentives. The greater the threat, the stronger the impact of investment-grade cut-offs. This paper is an early study to explore how investment-grade cut-offs affect managerial behavior in investment decision-making. © 2023 Elsevier B.V.

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