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Management Earnings Guidance and Future Credit Rating Agency Actions

abstract: While credit rating agencies use both forward-looking and historical information in evaluating a firm's credit risk, the role of forward-looking information in their rating decisions is not well understood. In this study, I examine the association between management earnings guidance news and future credit rating changes. While upward earnings guidance is not informative for credit rating changes, downward earnings guidance is significantly and positively associated with both the likelihood and speed of rating downgrades. In cross-sectional analyses, I find that downward guidance is especially informative in two important circumstances: (i) when a firm's current credit rating is overly optimistic compared to a model predicted rating, and (ii) when the relevance or reliability of alternative information sources is lower. In addition, I find that downward guidance is associated with lower future cash flows, as well as a higher volatility of future cash flows. Overall, the results are consistent with credit rating agencies incorporating voluntary bad news disclosures into their decisions about whether and when to downgrade a firm. / Dissertation/Thesis / Doctoral Dissertation Accountancy 2015

Identiferoai:union.ndltd.org:asu.edu/item:29731
Date January 2015
ContributorsLin, An-Ping (Author), Hillegeist, Stephen (Advisor), Hugon, Jean (Advisor), Call, Andrew (Committee member), Dhaliwal, Dan (Committee member), Arizona State University (Publisher)
Source SetsArizona State University
LanguageEnglish
Detected LanguageEnglish
TypeDoctoral Dissertation
Format75 pages
Rightshttp://rightsstatements.org/vocab/InC/1.0/, All Rights Reserved

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