The impact of credit ratings on capital structure
Joint Authors
Çelik, Saban
Abd Allah, Yumna N. M.
Alshakhwri, Nasir
Aktan, Bora
Source
ISRA International Journal of Islamic Finance
Issue
Vol. 11, Issue 2 (31 Dec. 2019), pp.226-245, 20 p.
Publisher
International Shari'ah Research Academy for Islamic Finance
Publication Date
2019-12-31
Country of Publication
Malaysia
No. of Pages
20
Main Subjects
Abstract EN
Purpose – The purpose of this paper is to empirically investigate the effect of real credit ratings change on capital structure decisions.
Design/methodology/approach – The study uses three models to examine the impact of credit rating on capital structure decisions within the framework of credit rating-capital structure hypotheses (broad rating, notch rating and investment or speculative grade).
These hypotheses are tested by multiple linear regression models.
Findings – The results demonstrate that firms issue less net debt relative to equity post a change in the broad credit ratings level (e.g.
a change from A- to BBBþ).
The findings also show that firms are less concerned by notch ratings change as long the firms remain the same broad credit rating level.
Moreover, the paper indicates that firms issue less net debt relative to equity after an upgrade to investment grade.
Research limitations/implications – The study covers the periods of 2009 to 2016; therefore, the research result may be affected by the period specific events such as the European debt crisis.
Moreover, studying listed non-financial firms only in the Tadawul Stock Exchange has resulted in small sample which may not be adequate enough to reach concrete generalization.
Despite the close proximity between the GCC countries, there could be jurisdictional difference due to country specific regulations, policies or financial development.
Therefore, it will be interesting to conduct a cross country study on the GCC to see if the conclusions can be generalized to the region.
Originality/value – The paper contributes to the literature by testing previous researches on new context (Kingdom of Saudi Arabia, KSA) which lack sophisticated comparable studies to the one conducted on other regions of the world.
The results highlight the importance of credit ratings for the decision makers who are required to make essential decisions in areas such as financing, structuring or operating firms and regulating markets.
To the best of the authors’ knowledge, this is the first study of its kind that has been applied on the GCC region.
American Psychological Association (APA)
Aktan, Bora& Çelik, Saban& Abd Allah, Yumna N. M.& Alshakhwri, Nasir. 2019. The impact of credit ratings on capital structure. ISRA International Journal of Islamic Finance،Vol. 11, no. 2, pp.226-245.
https://search.emarefa.net/detail/BIM-965283
Modern Language Association (MLA)
Aktan, Bora…[et al.]. The impact of credit ratings on capital structure. ISRA International Journal of Islamic Finance Vol. 11, no. 2 (2019), pp.226-245.
https://search.emarefa.net/detail/BIM-965283
American Medical Association (AMA)
Aktan, Bora& Çelik, Saban& Abd Allah, Yumna N. M.& Alshakhwri, Nasir. The impact of credit ratings on capital structure. ISRA International Journal of Islamic Finance. 2019. Vol. 11, no. 2, pp.226-245.
https://search.emarefa.net/detail/BIM-965283
Data Type
Journal Articles
Language
English
Notes
Includes appendix : p. 244
Record ID
BIM-965283