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Credit Ratings and Liquidity Risk for the Optimization of Debt Maturity Structure

Department of Management Sciences, COMSATS University, Islamabad 44000, Pakistan
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J. Risk Financial Manag. 2018, 11(2), 24; https://doi.org/10.3390/jrfm11020024
Received: 19 March 2018 / Revised: 6 May 2018 / Accepted: 8 May 2018 / Published: 11 May 2018
(This article belongs to the Special Issue Risk Analysis and Portfolio Modelling)
The purpose of this study is to examine the relationship between credit rating scales and debt maturity choices. A liquidity hypothesis is used to formulate the testable proposition and conceptual framework. Generalized linear model (GLM) and pooled ordinary least square (OLS) are utilized by SAS programming to test the proposed hypothesis. Other different estimation techniques are also used for robust evidence. Results suggest that companies with high and low ratings have a shorter debt maturity. Companies with medium ratings have longer debt maturity structure. Liquidity shows a negative association with longer debt maturity structure. It is evident that at high rating scale with high liquidity, and at lower rating scales with lower liquidity firms have a shorter debt maturity. Mid rated firms with a low probability of refinancing risk show longer debt maturity structure. Considering refinancing risk by Asian companies make the nonlinear relationship between credit ratings and debt maturity choices. Results suggest the importance of credit ratings for the optimization of debt maturity structure of Asian firms, which was totally overlooked by the past studies. The findings of this study are consistent with the liquidity hypothesis. The findings also motivating financial managers and investors to consider credit ratings as a measure of financial constraints. View Full-Text
Keywords: credit ratings; debt maturity structure; liquidity risk; Asian firms credit ratings; debt maturity structure; liquidity risk; Asian firms
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Sajjad, F.; Zakaria, M. Credit Ratings and Liquidity Risk for the Optimization of Debt Maturity Structure. J. Risk Financial Manag. 2018, 11, 24.

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