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Economies 2017, 5(4), 47; https://doi.org/10.3390/economies5040047

An Inverse Problem Study: Credit Risk Ratings as a Determinant of Corporate Governance and Capital Structure in Emerging Markets: Evidence from Chinese Listed Companies

School of Business, University of Leicester, Leicester LE1 7RH, UK
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Academic Editor: Ralf Fendel
Received: 2 May 2017 / Revised: 5 September 2017 / Accepted: 19 October 2017 / Published: 29 November 2017
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Abstract

Credit risk rating is shown to be a relevant determinant in order to estimate good corporate governance and to self-optimize capital structure. The conclusion is argued from a study on a selected (and justified) sample of (182) companies listed on the Shanghai Stock Exchange (SHSE) and the Shenzhen Stock Exchange (SZSE) and which use the same Shanghai Brilliance Credit Rating & Investors Service Company (SBCR) assessment criteria, for their credit ratings, from 2010 to 2015. Practically, 3 debt ratios are examined in terms of 11 characteristic variables. Moreover, any relationship between credit rating and corporate governance can be thought to be an interesting finding. The relationship we find between credit rating and leverage is not as evident as that found by other researchers for different countries; it is significantly positively related to the outside director, firm size, tangible assets and firm age, and CEO and chairman office plurality. However, leverage is found to be negatively correlated with board size, profitability, growth opportunity, and non-debt tax shield. Credit rating is positively associated with leverage, but in a less significant way. CEO-Board chairship duality is insignificantly related to leverage. The non-debt tax shield is significantly correlated with leverage. The correlation coefficient between CEO duality and auditor is positive but weakly significant, but seems not consistent with expectations. Finally, profitability cause could be regarded as an interesting finding. Indeed, there is an inverse correlation between profitability and total debt (Notice that the result supports the pecking order theory). In conclusion, it appears that credit rating has less effect on the so listed large Chinese companies than in other countries. Nevertheless, the perspective of assessing credit risk rating by relevant agencies is indubitably a recommended time dependent leverage determinant. View Full-Text
Keywords: credit rating; capital structure; corporate governance; large-listed companies; regression analysis credit rating; capital structure; corporate governance; large-listed companies; regression analysis
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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Kang, M.; Ausloos, M. An Inverse Problem Study: Credit Risk Ratings as a Determinant of Corporate Governance and Capital Structure in Emerging Markets: Evidence from Chinese Listed Companies. Economies 2017, 5, 47.

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