Published In

The Financial Review

Document Type

Post-Print

Publication Date

4-2018

Subjects

Credit ratings, Investments, Endogeneity (Econometrics), Business networks, Social capital

Abstract

We explore the effect of director social capital, directors with large and influential networks, on credit ratings. Using a sample of 11,172 firm‐year observations from 1999 to 2011, we find that larger board networks are associated with higher credit ratings than both firm financial data and probabilities of default predict. Near‐investment grade firms improve their forward‐looking ratings when their board is more connected. Last, we find that larger director networks are more beneficial during recessions, and times of increased financial uncertainty. Our results are robust to controls for endogeneity. Tests confirm that causality runs from connected boards to credit ratings.

Description

This is the peer reviewed version of an article, which has been published in final form at https://doi.org/10.1111/fire.12157. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions."

DOI

10.1111/fire.12157

Persistent Identifier

https://archives.pdx.edu/ds/psu/29171

Available for download on Tuesday, April 28, 2020

Share

COinS