Do Credit Rating Concerns Lead to Better Corporate Governance? (Case study: Iran)
Mehrdad Ghanbari, Mostafa Rahimi, Sahar Arefizadeh, Banafsheh Jamshidi
The current study aimed to investigate the Asian financial crisis of 1997 to find out whether credit rating concerns have effects on firms’ corporate governance. The crisis has been treated as an exogenous shock resulted in expanding of Iran’s credit rating system’s informativeness. According to the results of the study, it is found that credit rating concerns have effect on corporate governance following the crisis but not prior to the crisis. In addition, the mentioned effect particularly regards firms being in chaebol business groups, compatible with their increased dependency on external financing. It is also revealed that firms being specially affected by the reforms, show an increased dependence on debt being dependent on credit ratings, correspondent with our hypothesized effects of this exogenous shock. This study made an attempt to propose a new approach for evaluation of the issue whether managers would expand their firms’ corporate governance with respect to their credit rating concerns, and it pinpoints the extended effects of reforms being carried out resultant to the financial crises (JEL G01, G24, G34).