Accounting and Finance 52 (2012) 291312

The eect of corporate governance on rms credit

ratings: further evidence using governance score in the
United States
Fatima Alalia, Asokan Anandarajanb, Wei Jianga
a
California State University Fullerton, Fullerton, CA 92834, USA
School of Management, New Jersey Institute of Technology, University Heights, Newark,
NJ 07102, USA

Abstract
We investigate whether corporate governance aects rms credit ratings and
whether improvement in corporate governance standards is associated with
improvement in investment grade rating. We use the Gov-score of Brown and
Caylor (2006), the Gompers G index and an entrenchment score of Bebchuk
et al. (2009) to proxy for corporate governance. Using a sample of US rms, we
nd that rms characterized by stronger corporate governance have a signicantly higher credit rating, and that this association is accentuated for smaller
rms relative to larger rms. We nd that an improvement in corporate governance is associated with improvement in bond rating.
Key words: Corporate governance; Credit ratings; Changes in corporate
governance; Changes in credit ratings
JEL classication: G24, G32, G34
doi: 10.1111/j.1467-629X.2010.00396.x

1. Introduction
In this study, we use the methodology developed by Ashbaugh-Skaife et al.
(2006) to examine the inuence of corporate governance on a rms credit
ratings. The issue of corporate governance has become more important because
of the highly publicized nancial reporting frauds at Enron, Worldcom and
Parmalat (Palmrose and Scholz, 2004). One of the most important functions of

We are grateful to the anonymous reviewers and the editors for their helpful comments
on the paper.
Received 31 August 2009; accepted 16 December 2010 by Robert Fa (Editor).
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corporate governance is to ensure the quality of the nancial reporting process

and the reliability of nancial information. This study has two objectives. First,
we investigate whether corporate governance aects rms credit ratings. Second,
we examine whether an improvement in corporate governance standards helps
with achieving an all important investment grade rating status for rms. We use
three dierent measures of corporate governance; the Gompers index (G-score),
the Brown and Caylors score (GOV_SCORE) and a score developed by Bebchuk et al. (2009).1 Our ndings corroborate the conclusions of the extant literature with specic reference to Ashbaugh-Skaife et al. (2006) that corporate
governance does aect credit ratings.
The GOV_SCORE that is used in this study comprises 51 factors that span
eight categories; audit, board of directors, charter/bylaws, director education,
executive and director compensation, ownership, progressive practices and state
of incorporation. These 51 governance provisions include, but are not limited to,
the dimensions used by Ashbaugh-Skaife et al. (2006) and other governance
attributes used in prior empirical work. Each of 51 factors is coded 1 if the rms
governance is considered to be minimally acceptable or 0 otherwise. The GOV_
SCORE is computed as the sum of the rms binary variables. Thus, higher values indicate stronger corporate governance. However, the GOV_SCORE has
limitations. For example, it is possible for a rm to game its GOV_SCORE by
altering peripheral factors such as getting their directors to attend a day-long session of an ISS-accredited program. Hence, as robustness checks, we used the
Gompers index (G-Score) used by Ashbaugh-Skaife et al., which has 24 characteristics and a score referred to as the entrenchment index developed by Bebchuk
et al. (2009), which has six characteristics.
In this study, we use the methodology of Ashbaugh-Skaife et al. and address
the same research question measuring corporate governance using the same
index as Ashbaugh-Skaife et al. We nd similar results. However, we contribute
to the literature by showing that the results of Ashbaugh-Skaife et al. hold
when we use two additional indices to measure corporate governance
(Gov-score and the index developed by Bebchuk et al. More importantly, we
nd that an improvement in corporate governance by a rm is associated with
an improvement in investment grading. Our additional results also show that
improving corporate governance is especially benecial for small rms than for
large rms.
Section 2 provides a brief discussion of relevant prior literature and presents
our hypotheses. Section 3 provides our research design and sample selection.
Section 4 discusses our results; Section 5 discusses additional tests. Section 6
discusses our robustness tests, and our conclusions are provided in Section 7.

The entrenchment index is based on six provisions; staggered boards, limits to shareholder bylaw amendments, poison pills, golden parachutes and super majority requirements for mergers and charter amendments.

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2. Literature review and hypotheses

Prior researchers on corporate governance and its implications focused on
three key areas: (i) the inuence of corporate governance on the quality of
reported earnings; (ii) the inuence of corporate governance on the accuracy of
analysts forecasts; and (iii) the inuence of corporate governance on bond ratings. In the rst category, Baxter and Cotter (2009) and Davidson et al. (2005)
found that corporate governance (as measured by composition of the audit committee and extent of non-executive directors on the board, respectively) was positively and signicantly associated with improved earnings quality. In the second
category, Kent and Stewart (2008) and Bhat et al. (2006) found that analysts
forecast accuracy was increased in the presence of greater corporate governance.
In the third category, to which this study belongs researchers note that greater
corporate governance can help mitigate both agency risk and information risk
through the establishment of mechanisms designed to deal with managerial
behaviour (Bhojraj and Sengupta, 2003; Cremers et al., 2004; Anderson et al.,
2004; Klock et al., 2004; Ashbaugh-Skaife et al., 2006).
Ashbaugh-Skaife et al. found that higher corporate governance is associated
with higher bond ratings. Hence, they concluded that the level of corporate governance mechanisms should inuence the assessment of default likelihood and
thereby credit ratings. Ashbaugh-Skaife et al. (2006) used four surrogates,
namely, type of ownership structure and its inuence, nancial stakeholder rights
(measured by an index developed by Gomper referred to as the Gompers index
that has 24 characteristics) and extent of nancial transparency; board structure
and processes for decision making. They provide evidence that credit ratings are
higher for rms characterized by high accrual quality, earnings timeliness and
board independence, but are lower for rms with a large number blockholders,
excessive CEO power and stockholder rights. Other studies have found similar
results using dierent surrogates to measure corporate governance.
Prior research has used various surrogates for corporate governance including,
among others, proportion of outside directors on the board (Byrd and Hickman,
1992; Beasley, 1996; Dechow et al., 1996; Subrahmanyan et al., 1997; Klein,
2002); CEO serving as chairman of the board (Imho, 2003); size of board
(Monks and Minow, 2001; Klein, 2002); extent of non-audit fees (Magee and
Tseng, 1990; Frankel et al., 2002). These studies, irrespective of the type of surrogate, show that increased corporate governance has the potential to inuence
credit ratings positively. Shleifer and Vishny (1997) taking a dierent track noted
that the relaxation of restrictions on shareholders rights increases the investors
ability to monitor and discipline managerial actions, thus reducing incentives for
managers to engage in opportunistic nancial reporting.
Elbannan (2009) found that low internal control quality adversely aected
bond ratings. Bradley et al. (2009) (using board stability, director liability indemnication as surrogates for corporate governance) also found that lower corporate governance had a negative inuence on bond ratings.
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The above discussions suggest that, in the presence of higher levels of corporate governance, the exibility of managers to act in their own self-interest is limited, resulting in more eective decision making and higher rm performance.
Indeed, Fitch Ratings (2004) emphasizes the importance of corporate governance in the rating process. Strong governance structures and practices improve
the reliability and validity of the reported accounting numbers used by rating
agencies in assessing a rms likelihood of default (Ashbaugh-Skaife et al., 2006).
This leads to our two related hypotheses stated as follows:
H1: Higher level of corporate governance is associated with higher credit ratings.
H2: Improvement in levels of corporate governance leads to improvement in credit
ratings.
3. Research design and sample selection
3.1. Model specication and variable denitions
To test our rst hypothesis, we estimate the following logistic regression:
Model 1.
X
CREDITRATING b0 b1 GOV SCORE
bj Control Variablesj e:
j

The credit ratings data used in our study were based on the long-term issuer
credit ratings compiled by Standard and Poors. The Standard and Poors ratings
range from AAA (highest rating) to D (lowest rating debt in payment default).
We measured credit rating in two ways following Ashbaugh-Skaife et al. (2006).
We rst created an indicator variable, INVSTMENT_GRADE, representing 1 if
the credit rating was, AAA, AA+, AA), A+, A, A) BBB+ and BBB); 0 otherwise. A rm is considered an investment grade if coded 1 and a speculative grade
if coded zero. A logistic regression model is estimated using this two-category
classication scheme. To increase the robustness of our results and to further test
the predicted relations between corporate governance and credit ratings, we also
estimated an ordered logit model (CREDIT_RATING). The ordered logit model
(also referred to as proportional odds model) is a regression model for ordinal
dependent variables and an extension of the logistic regression model for dichotomous dependent variables.2 We use ordered logit regression (OLR) because we
have dierent categories of credit ratings. As mentioned, OLR is an extension of
2

The model makes the proportional odds assumption: the odds ratio for being in a chosen
category or higher compared to being in a lower category is the same regardless of which
category is chosen. This implies that if the ordinal variable were collapsed into two categories, the odds ratio would be the same regardless of the cut-o chosen for the collapsing.

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the logistic regression model for dichotomous dependent variable allowing for
more than two ordered response categories and is recommended as the most
appropriate technique (Ashbaugh-Skaife et al., 2006) when the dependent variable has multiple values that can be ordered from low to high. For the dependent
variable of the ordered logit model, we collapsed the multiple ratings into seven
categories of credit ratings, which convey ordinal risk assessments. Each category
is mapped into a range of credit ratings as follows:
Rating category 1: D, C, CC, CCC, CCC+
Rating category 2: B), B, B+
Rating category 3: BB), BB, BB+
Rating category 4: BBB), BBB, BBB+
Rating category 5: A), A, A+
Rating category 6: AA), AA, AA+
Rating category 7: AAA
Our independent variable of primary interest was GOV_SCORE, which is
measured using the governance score developed by Brown and Caylor (2006).
We also had a number of control variables that could aect the default risk (and
hence, credit rating) of a rm. We subsequently use a number of control variables that have been used in the literature to surrogate or act as proxy for a
rms default risk. These are as follows:
3.1.1. Leverage (LEV)
Leverage of a rm proxies for default risk because the higher the proportion
of debt in its capital structure, the greater the probability the rm could nd difculty in paying o its creditors, (Ashbaugh-Skaife et al., 2006; Bhojraj and
Sengupta, 2003). Thus, we expect a negative relationship between a rms leverage and credit ratings. Leverage is measured as total debt divided by total assets.
3.1.2. Firms operating loss (LOSS)
When a rm incurs operating losses, the chances of paying o creditors could
diminish (Ashbaugh-Skaife et al., 2006). This is measured as a dummy variable
representing 1 if the net income before extraordinary items is negative in the
current year; 0 otherwise. The coecient of LOSS is expected to be negative.
3.1.3. Times interest ratio (INTCOVR)
This ratio indicates the ability of a company to pay o the interest due on its
debt. The lower this ratio, the greater the diculty in paying o interest and
hence a higher default risk (Ashbaugh-Skaife et al., 2006; Bhojraj and Sengupta,
2003). Thus, we expect a positive relationship between INTCOVR and credit
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ratings. This is measured as the operating income before depreciation divided by

the interest expense.
3.1.4. Subordinated debt (SUBORD)
Similar to Ashbaugh-Skaife et al. (2006), we also control for dierences in a
rms debt structure by including subordinated debt. The debt structure of a rm
with subordinated debt is considered to be more risky and increase the level of
default risk. This is because of the dierential claims to assets by debt providers.
As such, we expect a negative relationship between SUBORD and credit ratings.
SUBORD is measured as a dummy variable; 1 if a rm has subordinated debt; 0
otherwise. We use Compustat data item 80 used in the Ashbaugh-Skaife et al.s
study to measure presence or otherwise of subordinated debt.
3.1.5. Firm size (SIZE)
This is included as a control variable because smaller-sized rms are assumed
to have greater default of risk than larger rms (and vice versa) (Bhojraj and
Sengupta, 2003). We expect a positive relationship between SIZE and credit ratings. Firm size is measured as the natural log of total assets.
3.1.6. Market value of equity (MVBV)
The greater the market value of equity relative to book value, the higher the
probability of default risk (Bhojraj and Sengupta, 2003). This is because rms with
higher MVBV represent high-growth rms that could be associated with greater
risk. Thus, we expect a negative relationship between MVBV and credit ratings.
This variable is measured as the market value of stock multiplied by the number
of shares outstanding divided by the book value of equity at the end of a period.
3.1.7. Firms capital intensity (CAPINTEN)
The rms capital intensity is included to control for dierences in the rms
asset structure where rms with lower capital intensity are stated to have higher
risk of default and thus lower credit ratings, and vice versa (Ashbaugh-Skaife
et al., 2006). This is measured by the gross book value of property, plant and
equipment divided by total assets.
3.1.8. Firm performance (ROA)
Generally, lower performing rms are associated with higher levels of
default risk, (Ashbaugh-Skaife et al., 2006; Bhojraj and Sengupta, 2003). Firm
performance is measured by return on assets which is the net income before
extraordinary items divided by total assets.
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3.1.9. Cumulative daily stock return over year t (CUMRET)

This variable captures the stock price performance of the rm over a period
(Bhojraj and Sengupta, 2003). On the one hand, this could be positively associated with future expected cash ows of the rm, suggesting a lower default risk
and higher credit ratings. On the other hand, rms with good stock performance
could also be associated with higher default risk. Therefore, we do not predict
the sign for this coecient.
3.1.10. Market risk (BETA)
This variable captures the systematic risk for the rm, and thus, increased levels of market risk could accentuate the risk of default and reduce credit ratings
of the rm (Bhojraj and Sengupta, 2003). We measure this by the equity beta
obtained from Center for Research in Securities Prices (CRSP).
3.1.11. Type of industry in which a rm operates
To control for lower default risk for rms operating in regulated industries relative to other industries. We create 13 indicator variables using the four-digit
SIC industry classication (Frankel et al., 2002).3
The variable denitions are summarized in Table 1.
To test the second hypothesis, we could not use ordinal logistic regression or
multivariate logistic regression.4 Hence, to test our second hypothesis regarding
the impact of change in corporate governance on credit ratings, we calculate the
change in probability of receiving an investment grade credit rating for a one
standardized unit change in the governance score and the control variables.5 The
marginal change in the probability of achieving an investment grade rating from
our logistic regression model is measured as follows:

Industry membership is determined by SIC code as follows: agriculture (01000999),

mining and construction (10001999, excluding 13001399), food (20002111), textiles
and printing/publishing (22002799), chemicals (28002824, 28402899), pharmaceuticals
(28302836), extractive (13001399, 29002999), durable manufacturers (30003999,
excluding 35703579 and 36703679), transportation (40004899), utilities (49004999),
retail (50005999), services (70008999, excluding 73707379), and computers
(35703579, 36703679, 73707379).

In our study, the cross tabs show many cells either empty or very small so that an ordinal logistic or multivariate logistic model would bias the results. The use of marginal
eects is appropriate as it is a common test used to determine the economic signicance in
economics research.

We standardize each non-binary variable by its mean and dividing by its standard deviation. Since the variables in our model are measured in dierent units, standardization
facilitates the interpretation of our results.

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Table 1
Variable Denitions
Variable

Denition

INVSTMENT_GRADE

One if rm is an investment grade (S&P Debt Rating Compustat

no. 280 = 1 through 12 or BBB) or better), zero otherwise
Assigned ordinal rating score
Corporate Governance Score computed based on Brown and
Caylor (2006)
One if GOV_SCORE 34, and zero otherwise
One if 29 GOV_SCORE 33, and 0 otherwise
Total debt (Compustat no. 9 plus Compustat no. 34) divided by
total assets (Compustat no. 6)
Net income before extraordinary items (Compustat no. 18) divided
by total assets (Compustat no. 6)
One if the net income before extraordinary items is negative in the
current and prior scal year, zero otherwise
Operating income before depreciation (Compustat no. 13) divided
by interest expense (Compustat no. 15) or (Compustat no. 339)
One if company has subordinated debt, zero otherwise (Compustat
no. 80)
Natural log of total assets
Gross PPE (Compustat no. 7) divided by total assets
Cumulative daily stock return over year t
The market value of equity calculated as (Compustat no. 199)
multiplied by the number of shares outstanding (Compustat
no. 25); divided by the book value of equity at the end of period
(Compustat no. 60)
The equity beta obtained from CRSP, (data item: BETAV)

CREDIT_RATING
GOV_SCORE
HG
MG
LEV
ROA
LOSS
INTCOVR
SUBORD
SIZE
CAPINTEN
CUMRET
MVBV

BETA

@pX=@xi bipX1  pX;

where b is the vector of coecients, and X is the vector of independent variables.

We employ two approaches to calculating the marginal eects. The rst
approach is to compute the marginal eect at each observation and then to calculate the sample average of individual marginal eects to obtain the overall
marginal eect. Under the second approach, the marginal eect is calculated at
the mean value of regressors. For instance, the marginal eect of the GOV_
SCORE measures the change in the probability of receiving an investment grade
because of a one standardized unit change in the governance score while holding
all independent variables at their mean values (Agresti, 2002). For large sample
sizes, the two approaches yield similar results. However, for smaller samples,
averaging the individual marginal eects is preferred when it is possible to do so
(Greene, 2003, p. 668).

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3.2. Sample selection

Our initial sample consists of 8545 US companies for which GOV_SCORE
data are available from 20032005. We then exclude 5695 rms with missing
credit rating data (data item no. 280 Long-term Domestic Credit Ratings) and
other nancial data on Compustat. We further exclude 222 rms where there is
insucient information to calculate the cumulative stock returns, stock market
beta from CRSP.
Traditionally, the argument could be made that rms with better corporate
governance have better performance especially when using the index developed
by Gompers et al. (2003). Recent papers have questioned the ndings of superior
performance of so-called democracies rms with strong shareholder rights
over their polar opposite (dictatorships). For example, Johnson et al. (2009) nd
that abnormal returns disappear once a ne classication of industry is used to
control for industry factors. The issue of controlling for industry factors is
important. In this study, we use public company data and we control for industry eects using the industry classication of Frankel et al. (2002).
4. Results
4.1. Descriptive statistics and univariate tests
The descriptive statistics of our variables are shown in Table 2. The mean
(median) credit rating is 3.788 (4) implying a crediting rating in the BBB+ to
BBB) range. About 61 per cent of our samples have an investment grade credit
rating. The mean Gov-score is 30.02. The mean Gov-score for the 25th percentile
of our sample is 25, and the mean score is 35 at the 75th percentile. Untabulated
results show that the average GOV_SCORE improved from 2002 to 2003 (22.7
to 26.16) and further improved in 2004 (29.9). This indicates that the Sarbanes
Oxley Act (SOX) signicantly inuenced corporate governance as measured by
the GOV_SCORE. The improvement could be either driven by SOX requirements and the mandated provisions enacted by major US stock exchanges, or it
could stem from the fact that companies strengthened the corporate governance
on a voluntary basis in the post-SOX period.
Table 2 also shows that rms in our sample are protable (average ROA is
4.62 per cent). About 12 per cent of the rms in our sample incurred losses. The
mean log of total assets is 22.15. On average, 65 per cent of a rms total assets
is invested in property, plant and equipment (CAPINTEN), and subordinated
debt (SUBORD) constitutes 16.93 per cent of total assets. Sample rms also
have a market to book ratio (MVBV) of 2.95 and systematic risk (BETA) of
1.22.
Table 3 shows the correlations among the two credit rating measures and the
independent variables in our study. The upper right-hand portion of the table
displays the Pearson correlations, and the lower left-hand portion displays the
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Table 2
Descriptive Statistics (N = 2628)
Variable
Dependent Variable
INVSTMENT_GRADE
CREDIT_RATING
Independent Variable
LEV
ROA
LOSS
INTCOVR
SUBORD
SIZE
CAPINTEN
CUMRET
MVBV
BETAV
GOV_SCORE
HG
MG

Mean

Median

0.6123
3.7881
0.4862
0.0462
0.1221
12.893
0.1693
22.268
0.647
3.5747
2.9484
1.2247
30.034
0.3204
0.2842

1
4
0.4725
0.0436
0
6.9279
0
22.147
0.5874
3.105
2.2796
1.1205
31
0
0

25th Pctl

0
3
0.3918
0.0215
0
3.9942
0
21.284
0.3377
)0.84
1.6279
0.8212
25
0
0

75th Pctl

1
4
0.569
0.0742
0
13.328
0
23.198
0.9388
8.945
3.4382
1.5309
35
1
1

SD

0.4873
1.0638
0.1431
0.0586
0.3275
19.267
0.3751
1.2616
0.386
10.788
3.5593
0.5748
5.7427
0.4667
0.4511

INVSTMENT_GRADE equals one if rms credit rating is investment grade, and zero otherwise.
CREDIT_RATING is the ordinal ranking of the S&P LT Domestic Issuer Credit Rating (Compustat no. 280). GOV_SCORE = Corporate Governance Score computed based on Brown and Caylor
(2006); HG = one if GOV_SCORE 34, and zero otherwise; MG = one if 29 GOV_
SCORE 33, and 0 otherwise; LEV = total debt (Compustat no. 9 plus Compustat no. 34) divided
by total assets (Compustat no. 6); ROA = net income before extraordinary items (Compustat no.
18) divided by total assets (Compustat no. 6); LOSS = one if the net income before extraordinary
items is negative in the current and prior scal year, zero otherwise; INTCOVR = operating income
before depreciation (Compustat no. 13) divided by interest expense (Compustat no. 15) or (Compustat no. 339); SUBORD = one if company has subordinated debt, zero otherwise (Compustat no.
80); SIZE = natural log of total assets; CAPINTEN = Gross PPE (Compustat no. 7) divided by
total assets; CUMRET = cumulative daily stock return over year t; MVBV = the market value of
equity calculated as (Compustat no. 199) multiplied by the number of shares outstanding (Compustat
no. 25); divided by the book value of equity at the end of period (Compustat no. 60); BETA = the
equity beta obtained from CRSP, (data item: BETAV). All continuous variables are winsorized at
the top and bottom 1%.

Spearman correlations. Both INVSTMENT_GRADE and CREDIT_RATING

are positively associated with the GOV_SCORE at the 1 per cent signicance
level, providing preliminary evidence supporting our hypothesis that stronger
corporate governance is associated with higher credit ratings. While many of the
independent variables are correlated with the GOV_SCORE, none of the correlations are above 0.3, indicating multicollinearity is not likely a concern. We rely
on the multivariate analyses to formally test our hypothesis in the next section.

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)0.284
0.430
)0.389
0.519
)0.370
0.511
)0.008
0.017
0.307
)0.444
0.180
1
)0.289
0.257
)0.489
0.190
)0.069
)0.075
)0.040
0.050
0.045
)0.064

)0.286
1
)0.567
0.755
)0.153
0.046
)0.120
0.107
0.513
)0.165
0.137
0.298
)0.657
1
)0.426
0.036
)0.113
0.085
)0.145
)0.211
0.229
)0.116

0.449 )0.398

)0.319

0.880

)0.274
0.341
)0.357
0.434
)0.424
0.477
0.022
0.012
0.206
)0.401
0.170

0.350 )0.357

)0.282

0.820

)0.395
0.410
)0.188
1
)0.279
0.117
)0.152
0.056
0.460
)0.134
0.163

0.336

0.225

0.197
)0.136
0.036
)0.162
1
)0.173
)0.082
0.059
)0.112
0.124
)0.109

)0.336

)0.424

)0.108
0.093
)0.119
0.095
)0.170
1
0.062
)0.024
0.111
)0.238
0.267

)0.051
)0.075
0.086
)0.125
)0.048
0.042
1
0.034
)0.135
0.007
)0.014

0.523 )0.047
)0.036
0.065
)0.104
)0.022
0.030
)0.034
0.059
1
0.130
0.022
)0.188

0.010

0.006

0.099
0.325
)0.166
0.178
)0.098
0.069
)0.058
0.018
1
)0.071
0.156

0.053
)0.191
0.271
)0.055
0.101
)0.207
0.040
0.017
)0.088
1
0.010

0.219 )0.451

0.149 )0.420

)0.071
0.134
)0.120
0.077
)0.111
0.276
)0.029
)0.127
0.091
)0.012
1

0.186

0.172

GOV_
CAPINTEN CUMRET MVBV BETAV SCORE

0.470 )0.008

LOSS INTCOVR SUBORD SIZE

ROA

Pearsons correlation coecients are reported in the upper Triangle, and Spearmans Correlation Coecients are reported in the bottom Triangle.
GOV_SCORE = Corporate Governance Score computed based on Brown and Caylor (2006); LEV = total debt (Compustat no. 9 plus Compustat no. 34)
divided by total assets (Compustat no. 6); ROA = net income before extraordinary items (Compustat no. 18) divided by total assets (Compustat no. 6);
LOSS = one if the net income before extraordinary items is negative in the current and prior scal year, zero otherwise; INTCOVR = operating income
before depreciation (Compustat no. 13) divided by interest expense (Compustat no. 15) or (Compustat no. 339); SUBORD = one if company has subordinated debt, zero otherwise (Compustat no. 80); SIZE = natural log of total assets; CAPINTEN = Gross PPE (Compustat no. 7) divided by total assets;
CUMRET = cumulative daily stock return over year t; MVBV = the market value of equity calculated as (Compustat no. 199) multiplied by the number
of shares outstanding (Compustat no. 25); divided by the book value of equity at the end of period (Compustat no. 60); BETA = the equity beta obtained
from CRSP, (data item: BETAV). Bold correlation coecients indicate signicance at the 1% level. All continuous variables are winsorized at the top and
bottom 1%.

INVSTMENT_
GRADE
CREDIT_
RATING
LEV
ROA
LOSS
INTCOVR
SUBORD
SIZE
CAPINTEN
CUMRET
MVBV
BETA
GOV_
SCORE

INVSTMENT_ CREDIT_
GRADE
RATING LEV

Table 3
Pearsons and Spearmans Correlation Coecients

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Table 4
Logistic regression results of the eects of corporate
governance score on rms Credit Ratings
P
CREDITRATING b0 b1 GOV SCORE j bj ControlVariablesj e
Dependent Variable =
INVSTMENT_GRADE
Predicted
Sign
Intercept
GOV_SCORE
LEV
ROA
LOSS
INTCOVR
SUBORD
SIZE
CAPINTEN
CUMRET
MVBV
BETA
Year Indicators
Industry Indictors
Pseudo-R2
Likelihood v2
Wald v2
Sample size

?
+
)
+
)
+
)
+
+
?
)
)

Dependent Variable =
CREDIT_RATING

Coe.

P > v2

Coe.

)26.62
0.0844
)4.898
15.766
)1.127
0.0098
)2.797
1.3658
0.1161
)0.002
0.0146
)1.862
Included
Included
0.5353
2013.8
602.08
2,628

<0.0001
<0.0001
<0.0001
<0.0001
<0.0001
0.0634
<0.0001
<0.0001
0.5827
0.7211
0.4769
<0.0001

Not reported
0.0471
<0.0001
)2.672
<0.0001
11.114
<0.0001
)1.019
<0.0001
0.0155
<0.0001
)1.367
<0.0001
0.9853
<0.0001
0.0366
0.7819
0.0003
0.9299
0.054
<0.0001
)1.435
<0.0001
Included
Included
0.6274
2594.4
<0.0001
1614.4
<0.0001
2,628

<0.0001
<0.0001

P > v2

Bold indicates governance variable(s) of interest. INVSTMENT_GRADE equals one if rms credit
rating is investment grade, and zero otherwise. CREDIT_RATING is the ordinal ranking of the
S&P LT Domestic Issuer Credit Rating (Compustat no. 280). GOV_SCORE = Corporate Governance Score computed based on Brown and Caylor (2006); LEV = total debt (Compustat no. 9 plus
Compustat no. 34) divided by total assets (Compustat no. 6); ROA = net income before extraordinary items (Compustat no. 18) divided by total assets (Compustat no. 6); LOSS = one if the net
income before extraordinary items is negative in the current and prior scal year, zero otherwise;
INTCOVR = operating income before depreciation (Compustat no. 13) divided by interest expense
(Compustat no. 15) or (Compustat no. 339); SUBORD = one if company has subordinated debt,
zero otherwise (Compustat no. 80); SIZE = natural log of total assets; CAPINTEN = gross PPE
(Compustat no. 7) divided by total assets; CUMRET = cumulative daily stock return over year t;
MVBV = the market value of equity calculated as (Compustat no. 199) multiplied by the number of
shares outstanding (Compustat no. 25); divided by the book value of equity at the end of period
(Compustat no. 60); BETA = the equity beta obtained from CRSP, (data item: BETAV). All
continuous variables are winsorized at the top and bottom 1%.

4.2. Multivariate tests

4.2.1. Test results for model 1
The estimation results of Model 1 are reported in Table 4. When we use the
INVSTMENT_GRADE as our dependent variable to surrogate for credit
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rating, the coecient on the Gov-score is positive and highly signicant

(P < 0.0001). Consistent with our hypothesis, this indicates that better corporate
governance is associated with a higher likelihood of receiving an investment grade
credit rating. Table 4 also presents the results when we used CREDIT_RATING
as the dependent variable in our regression. We nd that this measure is also positively and signicantly associated with the GOV_SCORE. This adds to the
robustness of our results and provides further support for our hypothesis that
posits a positive eect of corporate governance on rms credit ratings. These
results support our H1. Note that both models are highly signicant with a likelihood ratio of 2013.8 and 2594.4, respectively, and both exhibit high explanatory
power with adjusted R squares of 0.5353 and 0.6274, respectively.
Turning to control variables, we note that the coecients of the control variables proxying for default risk (LOSS, LEV, SUBORD, MVBV and Beta) are
all negative and signicant (P < 0.0001). This indicates that crediting ratings are
lower for rms reporting a loss, with a higher leverage level, higher systematic
risk, having subordinated debt, or experiencing high growth. We also nd the
performance variable measured by ROA is positive and signicant (P < 0.0001)
indicating that higher performance is associated with higher credit ratings as
expected. The positive and signicant (P < 0.0001) coecient of the size variable indicates that, overall, the larger the rm, the greater the probability of
receiving a higher crediting rating. These ndings are in accordance with the predictions based on the literature (Sengupta, 1998; Ashbaugh-Skaife et al., 2006;
Bhojraj and Sengupta, 2003). We did not nd a signicant association between
our rating measures and CAPINTEN and CUMRET. The coecient of CUMRET even though insignicant is negative. This is consistent with Bhojraj and
Sengupta (2003). Traditionally, we would expect CUMRET to be positively
associated with future expected cash ows suggesting lower default risk. However, Bhojraj and Sengupta suggest that the alternative could be true as well,
namely, that rms with superior stock performance could also be associated with
higher risk perhaps because of the superior performance representing market
over valuation that could be possibly be adjusted in the future.
4.2.2. Test results for model 2
The marginal eects calculated using both approaches discussed in Section 3.1.
are reported in Table 5. The marginal eect represents the change in probability
of receiving an investment grade credit rating because of a one standardized unit
change in the variable of interest. The marginal eect of variable Xi is computed
as p(X)/xi = bip(X)[1 ) p(X)] where bx is evaluated either 1) at individual
observations and averaged across the sample, or 2) at mean values of X.
The result of key interest indicates that one unit increase in the GOV_SCORE
increases the probability of receiving an investment grade rating by 4.28 per cent
and 4.89 per cent, respectively, depending on how the marginal eect is calculated. This result provides further evidence that governance mechanisms have
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Table 5
Marginal changes in probabilities of receiving an investment grade credit rating dependent variable:
INVSTMENT_GRADE (N = 2628)

GOV_SCORE
LEV
ROA
LOSS
INTCOVR
SUBORD
SIZE
CAPINTEN
CUMRET
MVBV
BETA

Expected
sign

Marginal eect
at individual obs.

Marginal eect
at mean values

?
)
+
)
+
)
+
+
?
)
)

0.0428***
)0.0619***
0.0817**
)0.0996**
0.0166*
)0.2473***
0.15236***
0.00396
)0.0023
0.00458
)0.0946**

0.0489***
)0.0588***
0.0695***
)0.1047***
0.0061*
)0.2495***
0.1526***
)0.0062
)0.0092
0.0051
)0.0948***

Bold indicates governance variable(s) of interest. The marginal eect represents the change in probability of receiving an investment grade credit rating because of a one standardized unit change in the
variable of interest. The marginal eect of variable Xi is computed as: p(X)/ xi = bip(X)[1 ) p(X)]
where bx is evaluated either 1) at individual observations and averaged across the sample, or 2) at
mean values of X, Greene (2003). *,**,*** indicates statistical signicance at the 1%, 5% and 10%
level or better, respectively. INVSTMENT_GRADE equals one if rms credit rating is investment
grade, and zero otherwise. GOV_SCORE = Corporate Governance Score computed based on
Brown and Caylor (2006); LEV = total debt (Compustat no. 9 plus Compustat no. 34) divided by
total assets (Compustat no. 6); ROA = net income before extraordinary items (Compustat no. 18)
divided by total assets (Compustat no. 6); LOSS = one if the net income before extraordinary items
is negative in the current and prior scal year, zero otherwise; INTCOVR = operating income
before depreciation (Compustat no. 13) divided by interest expense (Compustat no. 15) or (Compustat no. 339); SUBORD = one if company has subordinated debt, zero otherwise (Compustat no.
80); SIZE = natural log of total assets; CAPINTEN = Gross PPE (Compustat no. 7) divided by
total assets; CUMRET = cumulative daily stock return over year t; MVBV = the market value of
equity calculated as (Compustat no. 199) multiplied by the number of shares outstanding (Compustat
no. 25); divided by the book value of equity at the end of period (Compustat no. 60); BETA = the
equity beta obtained from CRSP, (data item: BETAV). All continuous variables are winsorized at
the top and bottom 1%.

signicant implications for assessing a rms credit rating and that improvement
in GOV_SCORE is associated with improvement in credit ratings. This result
supports our H2. In addition, the results for the other variables with respect to
coecient signs and signicance remained the same including the coecient of
INTCOVR, which is positive and signicant at P-value 0.06 level.
5. Additional analyses
In this section, we conduct additional analyses to examine the role of the governance mechanism in explaining rms credit ratings. The raw GOV_SCORE used
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in our main analysis is an ordinal measure. Bebchuk et al. (2009) notes that using
the raw score measures imposes a linearity constraint on the ordinal
measures.6 This constraint may or may not be appropriate. We therefore perform
a second set of analyses by relaxing this constraint. More specically, we split our
sample into three levels of corporate governance. We dene HG (strong corporate
governance) to take on the value of 1 if GOV_SCORE 34, and 0 otherwise,
while MG (medium corporate governance) takes on the value of 1 if 29 GOV_
SCORE 33, and 0 otherwise. Our choices for interval width are designed to capture unambiguously the high, medium and low levels of the governance factor.
Roughly, 32 per cent of the rms are classied as having strong corporate governance regimes, 28 per cent as having weak corporate governance.7 Using the partitioning scheme, we estimate the following logistic regression model:
Model 3.
CREDITRATING b0 b1 HG b2 MG

X
j

bj Control Variablesj e
3

where HG and MG represent the partitioning indicator variables dened previously, and all other variables are as dened in Model 1. As specied, the model
also allows us to estimate the incremental eect of the level of corporate governance on rms credit ratings. The results are reported in Table 6.
Table 6 presents the regression analyses for the partitioned corporate governance. In the column where INVSTMENT_GRADE is the dependent variable,
the coecients on HG and MG are 0.8814 and 0.1467, respectively, but the

Specically, it would implicitly assume that the quantitative eect of going from, for
example, a low score (LG) to a medium score (MG) is the same as the quantitative eect
of going from a medium score (MG) to a high score (HG). There is no particular reason
that this should be the case. In other words, using the raw score implicitly imposes a linear restriction on the relation between the level of credit ratings and the Gov-score. By
partitioning our sample using indicator variables, we relaxed this constraint, and let the
data determine whether the eect of moving from LG to MG is the same as moving from
MG to HG.

We use alternative denition of HG and MG using the 75th and 25th quartiles. That is,
HG is dened as one if a rm has a GOV_SCORE of 35 or higher and zero otherwise.
We redene MG to take on the value of 1 if 25 Gov-Score 35, and 0 otherwise. We
nd that the coecient of HG is positive and signicant at the 1per cent level and that the
coecient of MG is positive and signicant at the 1 per cent level but the magnitude of
the coecient of HG (1.02) is more than twice as large compared to the coecient of MG
(0.45). In the OLR model, the coecient of MG is positive and signicant at 5 per cent
level, while the coecient of HG is positive and signicant at the 1 per cent level. The
magnitude of the coecient of HG is more than twice higher than the coecient of MG.
These results further support that only truly strong corporate governance is associated
with higher credit ratings.

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Table 6
Logistic regression results of the eects of high and
P medium governance scores on rms credit ratings CREDITRATING b0 b1 H Gb2 MG bj ControlVariablesj e
j

Dependent Variable =
INVSTMENT_GRADE

Intercept
HG
MG
LEV
ROA
LOSS
INTCOVR
SUBORD
SIZE
CAPINTEN
CUMRET
MVBV
BETA
Year Indicators
Industry Indictors
Pseudo-R2
Likelihood v2
Wald v2
Sample size

Dependent Variable =
CREDIT_RATING

Predicted sign

Coe.

P > v2

Coe.

?
?
?
)
+
)
+
)
+
+
?
)
)

)25.23
0.8814
0.1467
)4.809
15.407
)1.149
0.0106
)2.798
1.3922
0.1498
)0.002
0.0189
)1.848
Included
Included
0.5347
2010.5
600.19
2628

<0.0001
<0.0001
0.4349
<0.0001
<0.0001
<0.0001
0.0464
<0.0001
<0.0001
0.4765
0.8172
0.3633
<0.0001

Not reported
0.5434
0.3611
)2.695
11.086
)1.01
0.0156
)1.374
0.9952
0.0544
0.0006
0.0562
)1.44
Included
Included
0.6268
2590.3
1611.9
2628

<0.0001
<0.0001

P > v2

<0.0001
0.0716
<0.0001
<0.0001
<0.0001
<0.0001
<0.0001
<0.0001
0.6807
0.8704
<0.0001
<0.0001

<0.0001
<0.0001

Bold indicates governance variable(s) of interest. INVSTMENT_GRADE equals one if rms credit
rating is investment grade, and zero otherwise. CREDIT_RATING is the ordinal ranking of the
S&P LT Domestic Issuer Credit Rating (Compustat no. 280). HG = one if GOV_SCORE 34, and
zero otherwise; MG = one if 29 GOV_SCORE 33, and 0 otherwise; LEV = total debt (Compustat no. 9 plus Compustat no. 34) divided by total assets (Compustat no. 6); ROA = net income
before extraordinary items (Compustat no. 18) divided by total assets (Compustat no. 6); LOSS = one if the net income before extraordinary items is negative in the current and prior scal year,
zero otherwise; INTCOVR = operating income before depreciation (Compustat no. 13) divided by
interest expense (Compustat no. 15) or (Compustat no. 339); SUBORD = one if company has subordinated debt, zero otherwise (Compustat no. 80); SIZE = natural log of total assets; CAPINTEN = gross PPE (Compustat no. 7) divided by total assets; CUMRET = cumulative daily stock
return over year t; MVBV = the market value of equity calculated as (Compustat no. 199) multiplied by the number of shares outstanding (Compustat no. 25); divided by the book value of equity
at the end of period (Compustat no. 60); BETA = the equity beta obtained from CRSP, (data item:
BETAV). All continuous variables are winsorized at the top and bottom 1%.

coecient on MG is statistically insignicant (P-value = 0.4349). Note that the

coecient of HG is considerably more positive in magnitude than that of MG.
When we run the regression using CREDIT_RATING as our dependent variable, the results are similar except that the coecient on MG has turned marginally signicant. These results appear to suggest that only rms in the highest
category of corporate governance enjoy signicantly higher credit ratings relative
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to other categories of rms. While rms with the strongest corporate governance
have a high likelihood of receiving an investment grade credit rating or better
credit ratings, rms having moderately strong corporate governance may not.
Thus, although eorts by rms to strengthen their corporate governance are perceived favourably by rating agencies, only those rms adopting strong corporate
governance regimes achieve a signicant improvement in credit ratings. These
results provide additional insight into the relation between corporate governance
and credit ratings.
We also examine whether governance mechanisms have a dierential impact
on rms of dierent sizes. Small rms tend to be more risky. For high-risk rms,
traditional indicators such as past protability and debtequity ratio may not be
particularly informative about future cash ows. Small rms also have greater
information asymmetry relative to large rms and are perceived to have a higher
likelihood of withholding unfavourable information with regard to rm-specic
risk. Therefore, rating agencies would rely more on the rms governance structure such as the boards monitoring of management actions and oversight of the
nancial reporting process in evaluating the default risk for small rms. As a
result, higher corporate governance in small rms may be perceived more positively by rating agencies and thus have a relatively greater impact on these rms
credit ratings relative to larger rms.
To test whether rm size aects our results, we partition the rms in our sample into terciles based on rms scal year-end total assets. The large rms are
dened as those falling into the top tercile, and the small rms are those in the
bottom tercile. We ran separate regressions for the two subgroups, and
the results are reported in Table 7. Panel A presents the results using
INVSTMENT_GRADE as our rating measure. Similar to our main analysis, we
nd a positive association between the GOV_SCORE and INVSTMENT_
GRADE for both groups. However, while the coecient on the GOV_SCORE
is statistically signicant at the 0.01 level for the small rms, it is only marginally
signicant for the large rms (P-value = 0.085). In addition, the magnitude of
the coecient estimate for the small rms is more than twice that for the large
rms (0.1574 versus 0.0711). Panel B reports similar results for the regression
based on the CREDIT_RATING measure. These results lend support to our
conjecture that an increase in corporate governance has a greater eect (and
hence is more important) for smaller rms relative to larger rms. In addition,
we note that the control variables have the expected sign and signicance. Noteworthy is the coecient of INTCOVR that is marginally signicant in Panel A
for both small and large rms and is signicant at <0.001 in panel B.8
8

We consistently nd the OLR that uses CREDIT_RATING as dependent variable

provides stronger and more signicant results than the logistic regression that uses
INVESTMENT_GRADE as dependent variable. This can be attributed to the nature of
the OLR that it allows the intercepts to vary across dierent categories of the credit
ratings.

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Table 7
Logistic regression results of the eects of corporate governance score on rms credit ratings for
subsamples based on rm size
Large*
Predicted
sign

Coe.
estimate

Small*

P > v2

Coe.
estimate

P > v2

Panel A: Eect of GOV_SCORE on investment

P grade credit rating for large and small rms INVSTMENT_GRADE = b0 b1 GOV SCORE bj Control Variablesj e
j
Intercept
?
1.8533
0.9184
1.4737
0.1664
GOV_SCORE
?
0.0711
0.085
0.1574
0.003
LEV
)4.999
0.0115
)3.416
0.0003
ROA
+
9.543
<0.0001
11.51
<0.0001
LOSS
)
1.373
0.076
)1.52
0.0087
INTCOVR
+
0.0166
0.3953
0.0053
0.4257
SUBORD
)
)2.305
<0.0001
)4.132
<0.0001
CAPINTEN
+
)0.439
0.5377
1.4428
0.0001
CUMRET
?
)0.043
0.0467
)0.003
0.7556
MVBV
)
)0.028
0.6015
0.1413
0.0001
BETA
)
)4.287
<0.0001
)1.479
<0.0001
Year Indicators
Included
Included
Industry Indictors
Included
Included
Pseudo-R2
0.4361
0.4557
Likelihood v2
501.89
<0.0001
532.77
<0.0001
103.9
<0.0001
166.64
<0.0001
Wald v2
Sample size
876
876
Panel B: Eect of GOV_SCORE onPcredit rating ranking for large and small rms CREDIT_
RATING = b0 b1 GOV SCORE bj Control Variablesj e
j
Intercept
?
Not reported
Not reported
GOV_SCORE
?
0.0642
0.0752
0.0731
0.0002
LEV
)
)2.669
0.0005
)3.578
<0.0001
ROA
+
2.409
<0.0001
3.2196
0.0517
LOSS
)
)0.136
0.6959
)1.824
<0.0001
INTCOVR
+
0.0171
0.0005
0.008
0.0639
SUBORD
)
)1.964
<0.0001
)0.803
<0.0001
CAPINTEN
+
0.087
0.7652
0.0909
0.675
CUMRET
?
)0.015
0.0201
)0.005
0.5212
MVBV
)
)0.063
0.0091
0.1374
<0.0001
BETA
)
)2.243
<0.0001
)0.903
<0.0001
Year indicators
Included
Included
Industry indicators
Included
Included
Pseudo-R2
0.6492
0.4819
Likelihood v2
917.53
<0.0001
575.98
<0.0001
532.69
<0.0001
391.29
<0.0001
Wald v2
Sample size
876
876

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Table 7 (continued)
Bold indicates governance variable(s) of interest. INVSTMENT_GRADE equals one if rms credit
rating is investment grade, and zero otherwise. CREDIT_RATING is the ordinal ranking of the
S&P LT Domestic Issuer Credit Rating (Compustat no. 280). GOV_SCORE = Corporate Governance Score computed based on Brown and Caylor (2006); LEV = total debt (Compustat no. 9 plus
Compustat no. 34) divided by total assets (Compustat no. 6); ROA = net income before extraordinary items (Compustat no. 18) divided by total assets (Compustat no. 6); LOSS = one if the net
income before extraordinary items is negative in the current and prior scal year, zero otherwise;
INTCOVR = operating income before depreciation (Compustat no. 13) divided by interest expense
(Compustat no. 15) or (Compustat no. 339); SUBORD = one if company has subordinated debt,
zero otherwise (Compustat no. 80); SIZE = natural log of total assets; CAPINTEN = Gross PPE
(Compustat no. 7) divided by total assets; CUMRET = cumulative daily stock return over year t;
MVBV = the market value of equity calculated as (Compustat no. 199) multiplied by the number of
shares outstanding (Compustat no. 25); divided by the book value of equity at the end of period
(Compustat no. 60); BETA = the equity beta obtained from CRSP, (data item: BETAV). *Large
indicates that rm size falls into the top tercile, and Small indicates that rm size falls into the
bottom tercile. All continuous variables are winsorized at the top and bottom 1%.

6. Robustness checks
6.1. Tests using additional surrogates for corporate governance
As mentioned, the GOV_SCORE has limitations. An important limitation
raised by Bebchuk et al. (2009) is that the kitchen sink approach might be misguided. They note that, among a large set of provisions, the provisions of real
signicance are likely to constitute only a limited and possibly small subset. As a
result, an index that gives weight to many provisions that do not matter, and as
a result underweighs the provisions that do matter is likely to provide a less accurate measure of governance quality than an index that focuses only on the latter.
Furthermore, when the governance index include many provisions, rms seeking
to improve their index rankings might be induced to make irrelevant or even
undesirable changes and might use their improved rankings to avoid making the
few small changes that do matter. To check the robustness of our results, we reran the regressions using the Gompers G-Score. The results corresponding to
Tables 4, 5 and 6 are not shown but available on request. The results using
the Gompers G-Score are consistent with the main results of the study. We also
re-ran the regressions using the Bebchuk et al. (2009) index.9 The results are still
consistent. However, we note that for the Bebchuk et al. index, data were only
available for the year 2004.10 Hence, owing to smaller sample size, the tests have
a limitation in that they lacked power.
9

For expediency, the results using the entrenchment index are not reported but are available on request.

10

The Risk Matrix database does not report governance variables in years 2003 and
2005, and as a result, our usable sample is small and results lack power.
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6.2. Issue of endogeneity

One of the fundamental problems that papers on corporate governance
encounter is the issue of endogeneity. Specically, here the analysis could be subject to an omitted variable bias, where an omitted variable could impact both
credit ratings and the rms governance. To address endogeneity, we re-ran the
models using the simultaneous equation approach in which the endogenous variables are debt rating and governance score. The results are consistent. The coecient of the GOV_SCORE is positive and signicant at P-value 0.013 when we
use INVESTMENT_GRADE as a proxy; the coecient of the GOV_SCORE is
positive and signicant at P-value 0.007 when we use CREDIT_RATING.
7. Summary and conclusions
In this study, we provide evidence linking corporate governance to credit ratings. Governance mechanisms can reduce default likelihood by mitigating the
agency risk through eective monitoring of management actions and by attenuating the information asymmetry between the rm and creditors. In the prior
literature, Bhojraj and Sengupta (2003) used outside board member composition
to surrogate for corporate governance. Similarly, Anderson et al. (2004) used
both board member and audit committee composition to surrogate for corporate
governance. Using a single dimension to surrogate for corporate governance was
criticized as causing a potential correlated omitted variables problem that could
bias the results. Klock et al. (2004) subsequently used a score comprising 24
dimensions of corporate governance. Ashbaugh-Skaife et al. (2006) subsequently
used four surrogates including three single-dimension and one multidimension
surrogate (i.e. G-score).
As a further advancement, to measure corporate governance, we use a score
developed by Brown and Caylor (2006), the GOV_SCORE; a score developed
by Gompers et al., the G-Score and an index developed by Bebchuk et al. Overall, our results show that increased corporate governance does inuence credit
ratings, namely higher levels of corporate governance are associated with higher
credit ratings. Furthermore, we nd that only rms in the highest category of
corporate governance are associated with an increase in credit ratings. We nd
evidence that increased governance has a marginally greater impact on smaller
rms. Finally, we nd that information related to changes in corporate governance are value relevant since an improvement in corporate governance standards help with achieving an all-important investment grade rating status change
for the rms in our sample. The ndings in this research add to the extant literature on whether the level of corporate governance is factored in credit rating
decisions. Our results are important because they show that it is important for
companies to enhance corporate governance in all its possible dimensions
because this information is assimilated by bond rating agencies and translates to
lower cost of borrowing for companies.
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