Does Financial Performance Influence Credit Ratings?: An Analysis of Korean KRX Firms

MALIDAFYDD SIRUS,임형주 대한경영학회 2015 大韓經營學會誌 Vol.28 No.11

Credit rating agencies offer information about default risk. Previous literature suggests that firm’s credit ratings are influenced by various metrics, specifically, numerous risk considerations such as size, leverage and growth. However, there is limited evidence to support the relationship between credit ratings and financial performance. Our research is motivated by this caveat. The purpose of this paper is to discover if financial performance measures can be included as an indicator for default risk since the relation between financial performance and default risk/credit rating is a question left unanswered in a South Korean context. In this paper, we empirically test if financial performance measures can provide additional information about credit ratings and credit rating changes. We perform a battery of tests to establish if the following financial performance measures: EPS, CPS, ROA, ROE, and ROS have any explanatory power in explaining credit ratings levels and credit rating changes. Using a sample from 2002 to 2013, we find that EPS and CPS has a statistically positive relation to credit ratings, suggesting that firms with higher credit ratings have higher levels of EPS and CPS compared to firms with lower credit ratings. Moreover, we find that firms with positive performance measured by EPS and CPS in period t have the potential to experience a credit ratings change in period t+1. However, in South Korea, the majority of firms do not experience a credit ratings change. When we estimate the financial performance of the firms that do not experience a credit ratings change, we find a statistically significant relation between credit rating and financial performance for EPS and CPS. The results suggest that credit ratings for firms with positive financial performance remain stable Finally, we examine the relation between performance in period t and credit ratings increase and decrease in period t+1. The results suggest that the credit ratings of firms with high level of financial performances increase or remain the same. We do not find a relation between financial performance and credit rating decreases; this result may be due to our small sample size. The previous literature has largely ignored the association between credit ratings and performance. Taken together, our results suggests that EPS and CPS can be used as financial performance measures by investors, government agencies and debt issuers as additional information about a firms credit rating levels, and subsequent changes. We contribute to the literature by providing empirical evidence of a relationship between performance metrics and credit ratings, specifically the link between EPS.

Does Financial Performance Influence Credit Ratings?

Dafydd Mali(다피드 말리),Hyoungjoo Lim(임형주) 대한경영학회 2015 大韓經營學會誌 Vol.28 No.11

공시품질과 신용등급 불일치

문창호,이상철,이윤근 한국회계정책학회 2020 회계와 정책연구 Vol.25 No.4

[Purpose] This study examines the effect of disclosure quality on the credit ratings disagreements among the credit rating agencies(CRAs). At the same time, the study investigates whether the level of credit ratings assigned by the credit rating agencies moderate the association between the disclosure quality and the credit ratings disagreements. [Methodology] Using a sample of outstanding unsecured bonds ratings as of July 3 rd in each year during 2011-2019, being assigned to the non-financial firms listed in KSE or KOSDAQ by at least two or more domestic rating agencies among the three major ones in Korea(Korea Investors Service, Korea Ratings, NICE Investors Service), the study performs logistic regressions with a final sample of 1,299 firm-year observations. [Findings] This study finds that the disclosure quality is negatively associated with the ratings disagreements. This test result indicates that higher disclosure quality results in less credit ratings disagreements among CRAs. In addition, the study finds evidence that the negative effect of disclosure quality on ratings disagreements is only observed in firms with investment credit ratings, whereas the association between disclosure quality and credit ratings disagreements is not significant in firms with non-investment credit ratings. These test results imply that the level of credit ratings moderate the relationship between the disclosure quality and the credit ratings disagreements. [Policy Implications] Unlike previous research, which identified the effects of financial reporting quality and information asymmetry on the credit ratings disagreements, this study considers not only the effect of disclosure quality on the credit ratings disagreements but also moderating effect of the level of credit ratings on the association. Further Korean regulatory authorities could use these empirical test results as supporting evidences in improving firm’s disclosure quality. [연구목적] 본 연구는 공시품질이 신용평가사가 부여한 신용등급의 불일치에 미치는 효과를검증하고, 신용등급이 투자등급인지 여부에 따라 공시품질과 신용등급 불일치 사이의 관련성에차이가 있는지를 검증하는 것이 목적이다. [연구방법] 2011년부터 2019년까지 유가증권 및 코스닥 상장기업 가운데, 두 곳 이상의 국내 신용평가사로부터 부여받은 무보증회사채 신용등급을 보유한 비금융기업을 분석대상으로선정하였다. 관심변수인 공시품질과 종속변수인 신용등급 불일치 사이의 관련성을 검증하고자로짓회귀분석을 실행하였다. [연구결과] 공시품질이 높으면 신용평가사가 부여한 신용등급의 불일치가 감소하였다. 공시품질이 높아지면 피평가기업에 대한 정보의 불확실성과 비대칭성이 감소될 수 있기 때문에, 신용등급 불일치가 줄어드는 것으로 해석할 수 있다. 또한 피평가기업의 신용등급이 투자등급인경우 공시품질과 신용등급 불일치 사이의 관련성이 유의적인 음의 관계를 보인 반면, 투기등급인 경우에는 유의적인 관련성이 나타나지 않았다. 공시품질이 높아져서 신용등급 불일치가 감소하는 효과는 피평가기업의 신용등급이 투자등급인 경우에만 유효하다는 사실을 보여준다. [정책적 시사점] 본 연구는 공시품질이 신용평가사의 신용등급 불일치를 가져와 기업의 자본비용을 높이는 원인이 될 수 있다는 가능성을 제시함으로써, 피평가기업이 공시품질을 높이기위한 유인을 제공할 수 있으며, 공시품질 담당자의 규제와 관련한 의사결정의 근거자료로 활용될 수 있다는 측면에서 의의가 있다.

복수평가제도가 신용등급 쇼핑에 미치는 영향에 관한 연구

강경훈 ( Kyeong Hoon Kang ),이준서 ( June Suh Yi ) 한국금융연구원 2011 금융연구 Vol.25 No.3

In Korea, all issuers of corporate bonds are required to obtain credit ratings from two or more credit rating agencies. Since the Korean credit rating market is dominated by three big agencies, many industry commentators have argued that the requirement can stifle competition in the credit rating market. Reflecting these critiques, the Korean government has been reported to consider repealing the requirement. The global financial crisis, however, showed that rating shopping and conflict-ridden rating processes could threat the stability of financial systems. Furthermore, according to Benmelech and Dlugosz (2010), tranches that are rated by just one agency, a characteristic that is consistent with ratings shopping, are more likely to be downgraded, and more severely at that. In the light of these experiences, the Korean government should be careful in deciding whether to repeal the requirement of multiple credit ratings. This paper provides a theoretical analysis about the effects on rating shopping of the requirement based on the model of Bolton et al. (2011), a credit ratings game among issuers, investors and credit rating agencies. We find the introduction of the requirement of multiple credit ratings can increase the possibility of the equilibrium where all the credit rating agencies always announce inflated ratings. However, the requirement can increase the social welfare in the equilibrium where all the CRAs always tell the truth. Since the former type of equilibrium is not sustainable dynamically, the latter type of equilibrium is more realistic and sheds more light on the decision about the repeal of the requirement of multiple credit ratings. The direct policy implication from these results of our theoretical analysis is simple. The Korean government needs to retain the requirement of multiple credit ratings in order to reduce rating shopping by issuers. We also discuss other relevant policy issues such as credit rating fees, disclosure of rating process and reliability of the credit ratings. First of all, issuers need to be prevented from paying for specific ratings and they should pay the CRA upfront before it does its initial analysis. If bond issuers pay CRAs upfront, not contingent on the report, the CRAs are likely to estimate a more correct rating. An independence of credit rating is hardly established in the current issuer-pay model in which CRAs are paid on ratings issued. Furthermore, an innovative method for fee payment through rating platform is recommendable in that the central platform can solve the conflict of interests between issuers and investors. The platform would be paid pre-issue fees, assign CRAs, and allocates fees to CRAs regardless of outcomes. In other words, the platform would be completely in control of the rating process. Second, issuers should be required to disclose all credit ratings including preliminary ratings from other agencies. If the supervisory authority enforces issuers to announce all CRAs who are requested to evaluate the credit rating irrespective of their acceptance and to pay for even preliminary or unofficial rating, it will decrease the incentives of the issuers to contact CRAs unofficially and solicit better credit rating. This requirement can prevent the issuers from shopping ratings and allow investors to take rating shopping information into account in pricing the corresponding securities. Third, transparency of rating process should be enhanced. For this objective, the supervisory authority needs to set the standards that will make CRAs provide more exact information related to rating evaluation, including applied models, assumptions, sensitivity with respect to rating variability, reasons of rating change Finally, relative performance statistics for CRAs must be made transparently and clear. Social welfare is observed to increase only if CRAs announce truthful rating, according to the results of the paper. An obvious path to this end would be for the government to create a centralized data repository and to standardize performance histories so that the track record of CRAs could be easily compared by investors at one centralized site.

Does Conditional Conservatism Affect Credit Ratings?: An Analysis Of Korean KRX Bond Issuers

임형주,MALIDAFYDD SIRUS 한국기업경영학회 2015 기업경영연구 Vol.22 No.5

We examine whether there is a relationship between conditional conservatism and credit ratings. Credit rating levels are the ‘opinion‘ of credit rating agencies about a firm’s default risk based on financial statements data and corporate governance information. In South Korea, credit rating levels are issued by National Information & Credit Evaluation (NICE), Korea Investor Services (KIS), Korea Ratings (KR) and Seoul Credit Rating & Information (SCI), and are used by bond investors, debt issuers, and governmental officials for decision making and legislative purposes. Accounting practices such as conditional conservatism have the potential to signal low default risk and financial stability. Accounting conservatism reflects a manager’s tendency to recognize “bad news” in a timelier manner than “good news” (Basu, 1997). The academic community continues to debate the merits of conservatism. However, the majority of studies suggest that conditional conservatism is an accounting practice with the potential to increase accounting quality (Watts, 2003; Roychowdhury and Watts, 2007; Ball and Kothari, 2008). In the U. S., numerous studies find an association between level of conservatism and credit ratings (Ahmed et al., 2002; Moerman (2006); Nikolaev (2007); Bauwhede (2007): Zhang, 2008; Peek 2010). Therefore, in the U.S., there is evidence to suggest that credit ratings agencies care about conditional conservatism as an accounting practice with the potential to influence default risk. In South Korea, there is evidence of a positive relation between accounting conservatism levels and credit ratings (Park et al., 2011). However, the association between credit rating changes and financial conservatism is a question left unanswered. Our motivation is to address this caveat. To our knowledge, our study is the first to analyze the association between conditional conservatism and credit ratings and credit rating changes using the two most popular conditional conservatism measures. We contribute to the literature by providing an evidence that conditional conservatism may influence a credit rating agency’s perception of default risk. We examine if conditional conservatism is associated with credit ratings based on the following; conditional conservatism is an accounting practice associated with reducing a manager‘s ability to 'inflate' net income; hence, constraining dividend has the potential to reduce a credit rating agency’s perception of risk. Credit rating agencies issue higher credit ratings to firms with lower default risk. Thus, because firms care deeply about maintaining or increasing their credit ratings, conservative reporting should have a positive a relation with credit rating levels / credit ratings changes. We perform numerous tests to establish the relation between conditional conservatism and credit ratings / credit rating changes. We investigate the relationship between a firm's credit ratings / credit ratings changes and conditional conservatism using a KRX firm sample of 1,310 firm-years from 2002 to 2013. First, we establish the levels of conditional conservatism using the accruals based Ball and Shivakumar (2005) and the market based Basu (1997) models. The results suggest that firms borrow equity in the form of public debt are conservative, consistent with previous studies. Next, we use a dummy variable approach to examine the relationship between conservatism and credit ratings for investment / non-investment grade firms. We find that investment and non-investment grade firms have statistically insignificantly different levels of financial conservatism. Thirdly, we test if conditional conservatism has a statistically significant relation with credit rating changes. We find that firms that experience an increase or a decrease in their credit rating levels from period t to t+1 are marginally more conservative compared to firms with consistent credit rating levels. Next, we test the rel...

Big 4 감사인의 감사품질과 기업신용등급-비상장기업을 대상으로-

박종일,남혜정,최성호 한국세무학회 2011 세무와 회계저널 Vol.12 No.3

본 논문은 비상장기업을 대상으로 Big 4 감사인에게 감사받은 기업들의 신용등급이 더 높은가를 실증적으로 검증함으로써 Big 4 감사인에 대한 감사품질의 차이가 비상장시장에서 나타나고 있는지를 알아보는데 목적이 있다. 또한 비상장시장에서 차별적 감사수요에 따라 Big 4 감사인을 선임한 기업들이 회계정보의 질이 개선된다면 이들 기업의 이익과 신용등급간의 양(+)의 관계가 더 강화되는지를 살펴보고자 한다. 즉 본 연구는 상장기업과 달리 자본시장의 압력이 부재하고 시장여건이 상이한 비상장기업을 중심으로 Big 4 감사인의 감사품질이 그렇지 않은 경우보다 차별성이 있는가를 기업의 신용등급에 미치는 영향을 분석함으로써 Big 4 감사인의 감사품질에 대한 시장의 평가(market's perception)를 살펴보고자 한다. 일반적으로 국외의 경우는 감사인 규모가 클수록 감사품질이 높은 것으로 알려져 있다(Teoh and Wong 1993 ; Becker et al. 1998 ; Krishnan 2003 ; Behn et al. 2008 등). 그러나 우리나라의 경우는 감사품질의 대용치로 감사인의 규모를 이용한 연구결과들이 혼재되어 있으며, 대부분의 연구들이 상장기업을 대상으로 하였다. 이와는 달리 본 연구는 시장여건이 다르고 자본시장의 압력이 부재한 비상장기업을 대상으로 Big 4 감사인의 차별적 감사품질을 신용평가기관의 신용등급 관점에서 살펴본다는 점에서 의의가 있다. 이를 위하여 본 연구는 2005년부터 2009년까지 감사받은 비상장기업을 대상으로 대표본인 49,551개 기업/연 자료를 이용하였다. 연구결과는 다음과 같다. 첫째, 신용등급에 영향을 미칠 수 있는 일정 변수를 통제한 후에도 Big 4 감사인에 의해 감사받은 비상장기업이 그렇지 않은 기업에 비해 신용등급이 유의하게 더 높게 나타났다. 둘째, Big 4 감사인이 감사한 비상장기업은 그렇지 않은 경우보다 이익과 신용등급간의 양(+)의 관련성이 유의하게 더 강화되는 것으로 나타났다. 이러한 결과는 앞서 Big 4 감사인으로부터 감사받은 기업들은 그렇지 않은 경우와 비교해서 Big 4 감사인의 높은 감사품질에 따라 재무제표의 신뢰성이 향상될 것으로 신용평가기관이 평가하는 것 외에도 신용평가기관은 Big 4 감사인이 감사한 재무제표에서 산출된 이익은 그렇지 않은 경우보다 이익의 질이 더 높다고 평가한 후 신용등급을 추가로 더 높인다는 발견이다. 즉 신용평가기관은 Big 4 감사인 자체의 평판에 따른 신호 정보뿐만 아니라 이들 고품질의 감사인이 감사하면 회계정보의 질을 서로 연계시켜 평가한 후 신용등급에 반영하고 있음을 알 수 있다. 이러한 결과는 추가분석에서 감사반의 포함여부에 상관없이 일관되게 나타났으며, OLS 뿐만 아니라 Ordered Probit 회귀분석이나 횡단면-시계열적 종속성의 문제를 조정한 Newey and West(1987)의 결과들에서도 강건하게 나타났다. 이상의 분석결과를 종합하면, 기업평가에 있어 전문성을 가지고 있는 신용평가기관은 상장기업과 비교할 때 상대적으로 공시환경이 열악하여 시장내 정보불균형이 높은 비상장기업이라고 하더라도 차별적 감사수요에 따라 고품질의 Big 4 감사인을 선임한 기업들은 양질의 감사서비스를 제공받은 것으로 평가함을 의미한다. 따라서 본 연구의 검증결과는 비상장시장에서 부채차입비용을 감소시키려는 유인이 있는 비상장기업들은 신용등급을 높이기 위해 보다 높은 감사서비스를 제공하는 Big 4 감사인을 더 선호하는 차별적 감사수 ... This paper investigates the effect of Big 4 auditors on credit rating and whether a relationship between earnings and credit ratings increases in non-listed firms. Prior studies suggest that large size of audit firms tend to provide high quality of audit service (Teoh and Wong 1993 ; Becker et al. 1998 ; Krishnan 2003 ; Behn et al. 2008). However, evidence on the effect of Big audit firms in Korea is still mixed and most results come from listed firms. For non-listed firms, market demand is relatively low and accounting environment is also quite different from that of listed firms. Therefore, market perception to audit quality of Big 4 auditors than non-Big 4 auditors will be different. In addition, costs and benefits from hiring Big 4 audit firms will be vary depending on a firm's incentives. Given the different conditions of non-listed firms compared to listed firms, a question on the effect of Big 4 auditors in non-listed firms is a testable empirical issue. And, if firms audited from Big 4 auditors are more likely to provide a high quality of financial information and credit companies believe that creditability of these firm's financial information is better than others, a association between earnings and credit ratings of firms audited from Big 4 auditors will be reinforced. This paper empirically explores these issues. Using a large samples 49,551 firm-year observations for the period of year 2005 to 2009 in non-listed firms, we test the effect of Big 4 auditors in terms of credit ratings. To do this, we use credit ratings from KIS-Value Ⅲ. Initially, 1 point represents firms with the best credit rank and 10 point represents firms with the worst credit rank. However, for the purpose of interpretation, we remark credit rank oppositely. That is, 1 point represents firms with the worst credit rank and 10 point represents firms with the best credit rank. Test variable in this paper is a Big 4 auditor dummy and a interaction variable between Big 4 auditors dummy and earnings. Other control variables such as return on assets, performance-adjusted discretionary accruals, size, leverage, change in cash flow, loss dummy, a fiscal year dummy, and industry and year's dummy are included in the credit ratings model. This paper finds the following results. First, firms received audit service from Big 4 auditors are more likely to have a good credit rating after controlling for other variables that affect credit ratings, Specifically, a coefficient on BIG4 is 0.282 (t=18.529) in OLS regression and statistically significant. This means that for non-listed firms, the effect of Big 4 auditors is significant and firms audited from Big 4 auditors are more likely to have a good credit ratings. Second, a positive relationship between earnings and credit ratings is pronounced for firms audited from Big 4 auditors than that of firms audited from Other auditors. This finding implies that creditability of financial reporting of firms audited from Big 4 auditors is considered as a positive signal to credit ratings. In addition, credit companies evaluate that earnings quality of these firms is better than that of firms audited from non-Big auditors. Our results are still robust in various sensitivity analyses such as Ordered Probit analysis and Newey and West (1987) methods. In sum, results of this paper suggest that even non-listed firms that beared relatively high audit fee, the effect of Big 4 auditors still exists and they enjoy a good credit ratings as a benefit from Big 4 auditors. So differential audit demand is working for non-listed firms. This effect may lead low cost of debt, because prior studies suggest that firms with good credit ratings are more likely to have low cost of debt. This paper has some contributions to related researches. The findings in this study has various implications. The results of this paper suggest that auditing services from Big 4 auditors provide a good signal in terms of credibility of financial informat...

신용등급이 타인자본비용에 미치는 추가적인 정보가치 -비상장기업을 중심으로-

박종일 한국세무학회 2011 세무와 회계저널 Vol.12 No.2

본 논문은 주식시장이 부재한 비상장기업을 대상으로 신용등급이 좋은 기업일수록 기업의 타인 자본비용이 하향조정되는가를 규명하는데 목적이 있다. 특히 타인자본비용에 영향을 미칠 수 있는 기본적인 재무정보 및 기업특성변수를 통제한 후에도 신용등급 정보가 타인자본비용에 추가적인 정보효과(incremental informational value)를 가지고 있는가를 분석하고자 한다. 비상장시장의 채권자들이 회계정보의 질을 반영하는 것 외에도 신용평가기관이 산출하는 신용등급을 고려한 대출 의사결정이 수행되고 있는지에 대해서는 국내외로 잘 알려진 바가 없다. 따라서 본 연구에서는 재무정보나 기업특성을 고려한 후에도 신용정보(credit information)가 추가적인 정보가치가 있는가를 비상장기업의 부채조달비용 관점에서 검증하고자 한다. 본 연구의 가설은 신용평가기관이 공시하는 신용등급 정보에는 기업관련 비공개된 정보까지 정보로서 반영되어 산출된다는 점에서 재무정보(financial information)와는 다른 정보를 내포하고 있을 것으로 기대되며, 그러한 점에서 타인자본비용에 영향을 미칠 수 있는 재무정보 및 기업특성 변수를 고려한 후에도 신용정보는 타인자본 비용에 추가적 정보력을 가질 것으로 기대하였다. 특히 신용등급과 비상장기업의 타인자본비용간에는 역의 관계가 성립할 것으로 예상하였다. 이러한 검증가능한 의문사항을 알아보기 위하여 본 연구는 타인자본비용의 대용치로 부채차입이 자율과 차입이자율 스프레드를 이용하였고, 신용등급은 NICE신용평가정보(주)에서 공시된 기업신용등급 자료를 이용하였다. 또한 타인자본비용의 측정방법도 연속변수와 소수의 순위등급변수인 경우로 나누어 비교분석을 수행하였다. 분석기간은 2004년부터 2009년까지 6년간이며, 표본은 충분한 자료인 46,616개 기업/연 자료가 이용되었다. 연구결과에 따르면, 타인자본비용에 영향을 미칠 수 있는 재무정보나 기업특성을 통제한 후에도 신용등급이 좋은 기업일수록 타인자본비용(부채차입이자율 및 차입이자율 스프레드)은 1% 이내의 수준에서 유의하게 감소된 결과로 나타났다. 이러한 결과는 종속변수를 연속변수로 측정하거나 소수의 순위등급변수로 측정한 경우와 상관없이, 그리고 OLS 결과뿐 아니라 이분산성 및 횡단면-시계열적 종속성 문제를 통제한 후 t 통계치를 제공하는 Newey and West(1987) 검증결과 모두에서 일관성 있게 강건한 것으로 나타났다. 이상의 결과로 볼 때, 비상장시장에서 기업신용정보는 채권자들의 대출의사결정시에 기업의 재무정보나 기업특성 외에도 중요한 정보원으로 활용되고 있음을 시사한다. 국내외로 비상장기업을 대상으로 한 연구가 미미한 실정에서 비상장기업들을 대상으로 타인자본비용의 결정모형에서 재무 정보나 기업특성 변수 외에 신용평가기관의 신용정보가 중요하게 채권자들의 정보원으로 이용되고 있음을 보여주고 있다는 점에서 본 연구는 의의가 있다. 본 연구의 결과는 비상장시장 특히 채권시장에서 채권자들의 대출의사결정과정을 파악하고 이해하는데 있어 도움이 되며, 그러한 맥락에서 학계 및 규제기관에게도 유익한 정보를 제공해 줄 것으로 기대된다. The purpose of this paper is to investigate the effect of credit rating on cost of debt in non-listed firms. A firm’s credit rating reflects a rating agency’s opinion of an entity’s overall creditworthiness and its capacity to satisfy its financial obligations. The principal research issue addressed in this study is the nature of the interrelations between cost of debt, credit ratings, and financial information with particular focus on the role of credit ratings. But the nature of the interrelationships between credit ratings, cost of debt, and financial information has not been fully resolved by previous research. Resolution of these interrelationships is important both as a contribution to the body of accounting research on the properties of accounting numbers and in a practical sense. The importance of credit ratings continues to rise with the globalization of capital markets and the increased use of credit ratings in financial regulation and contracting (Frost 2007). Despite the vital role that credit ratings play in capital markets, relatively little is known about the information used by credit analysts in making rating recommendations. Credit ratings supply a signal about the firms’ default risk. Credit ratings and cost of debt are negatively correlated ; In other words, higher yields are required by debtholders to compensate for the risk of investing in lower-rated (high default-risk). This correlation does not imply causation, however, since credit ratings and cost of debt could be determined by a third factor: concurrent publicly available information. Recent research discussed indicates that both credit ratings and financial information may have independent effects on cost of debt. The research design used in this study provides evidence on the issue of whether credit ratings directly determine the cost of debt, whether financial information directly determines the cost of debt, and whether financial information affects the cost of debt indirectly through determining credit ratings. To do this, this paper use credit ratings from KIS-Value Ⅲ. Initially, 1 point represents firms with the best credit rank and 10 point represents firms with the worst credit rank. However, for the purpose of interpretation, remark credit rank oppositely. That is, 1 point represents firms with the worst credit rank and 10 point represents firms with the best credit rank. For a dependent variable, cost of debt are borrowing’s interests rates and borrowing’s yield spread. The borrowing yield spread is calculated as deducting a 3-year treasury bond from loan interest rate. Observations of this paper are 46,616 firm-year in non-listed companies which are not listed in Korea security market from 2004 to 2009. Findings of this paper are following, firms received a good credit rating after controlling for other financial variables and firms characteristics that affect negatively the cost of debt (borrowing’s interests rates and borrowing’s yield spread). These results are still hold even after appling a fractional ranks variable rather than a continuous variable as a dependent variable. And also t-statistics from Newey and West (1987) are significant, suggesting that this results are robust. This study primary analysis documents that firms’ credit ratings affects the cost of debt. Therefore, these findings of this study are very useful and provide a lot of important implications to regulators, investors and creditors that are interested in cost of debt. Academics can also apply the discussion in this paper for related researches.

임계이익의 충족이 신용평가에 미치는 영향

심호석 韓國公認會計士會 2012 회계·세무와 감사 연구 Vol.54 No.2

This paper examines the relation between beating earnings thresholds and credit ratings. Specifically, I conduct empirical tests on whether beating earnings thresholds has a positive impact on credit ratings. The earnings thresholds that have been frequently suggested in the previous research are three : the zero earnings, the prior period's earnings, and finally the analyst's earnings forecasts. These earnings numbers have been mentioned as the target levels of earnings that managers wish to reach. The target numbers have important implications in that those can be an heuristic criterion for the decision makings of interested parties, so that managers have incentives to manage their performance beyond the target numbers. Actually, many scholars have mentioned the importance of those numbers in investors' decision makings. Degeorge et al.(1999) provide some theory why the earnings thresholds are of concern, which is derived from the behavioral aspects of human thoughts. They say that many of outsiders show 'a threshold mentality'. In a range of circumstances, individuals perceive continuous data in a discrete form; indeed, the tendency of dividing the world into categories is a common aspect of human thought(Glass and Holyoak, 1986, p.149). Degeorge et al.(1999) mention that positive numbers are fundamentally different from non-positive numbers in the process of human thoughts. Second, they are based on prospect theory. The theory tell us that individuals trying to choose risky alternatives behave as if they evaluate performances as changes from the reference point(Kahneman and Tversky, 1979). If the preference of managers, investors, and board of directors was consistent with the prediction of prospect theory, then managers would have incentive plans regarding earnings thresholds. The earnings thresholds managers want to reach are likely to be the reference points in the value function of interested parties. Third, the earnings thresholds are important targets because common people tend to rely on the rule of thumb to reduce transaction costs. For experts such as analysts, bankers, and raters who have the discreteness of decision-makings, the thresholds will become more important in real business environments. Most of the previous studies have tested the threshold-beating effects in the stock market(Bartov et al., 2002), but this study aims to investigate some effects in the debt market. Specifically, I try to test the impact of beating earnings benchmarks on credit ratings. This study specifies empirical models in order to test threshold-beating effects. Credit ratings are the dependent variable, and dummies, whether earnings thresholds are beaten, are independent variables. I add controlling factors into the models that is likely to affect credit ratings. According to the regression results, reporting profits or increasing earnings appears to have a positive impact on credit ratings, and beating the analysts' earnings forecasts shows no impact : I find significance in the coefficients of dummy variables that indicates reporting profits or losses and reporting increasing or decreasing earnings but I don't find significance in the coefficient of the dummy variable that represents beating the analysts' forecasts. The profit-reporting effect appears bigger than the earnings-increasing effects : the coefficient of the profit-loss dummy is estimated significantly larger than that of the earnings increase-decrease dummy. I also find that firms with high default risk in general have lower credit ratings but, when beating earnings thresholds, their credit ratings turn positive relative to firms with low default risk ; I measure this effect by using the interaction variable of a default-risk variable and main dummy variables of beating earings thresholds. which show a significantly positive coefficient as expected. Furthermore, I conduct the same empirical tests using data of credit ratings of commercial paper, finding similar results to bond credit ratings. Other than that, I test the threshold-beating effects through earnings management in debt market. I compare credit ratings of both firms that beat the thresholds with earnings management and firms that beat the thresholds without earnings management. The results tell us that firms that beat the thresholds with earnings management do not suffer from significantly unfavorable effects, relative to firms that beat the thresholds without earnings management, which is against general expectations. I interpret this result cautiously as debt market do not care about how to beat earnings thresholds. I consider some implications of this study as an empirical research testing the effects of beating earnings thresholds on credit ratings in debt market. The existing literature have examined the threshold-beating effects in stock market but I extend the range of studies to debt market. The threshold-beating may have different effects on between the stock and debt market(Jiang, 2008), because of the differences of structures of payoffs and utilities between stockholders and debtholders. Brown and Caylor(2005) find in stock market that beating analyst's forecasts has the largest effect on stock returns, but I find comparative results in debt market that reporting profits has the largest effect on credit ratings. 본 논문은 임계이익의 충족과 신용평가의 관계를 실증적으로 연구한다. 구체적으로 기업이 임계이익(earnings thresholds)을 충족하였을 때 신용평가(credit ratings)에 긍정적인 영향을 미치는지 검증한다. 임계이익은 선행연구에서 일반적으로 기술하는 세 가지 이익수치를 말한다, 즉 제로이익(the zero earnings), 전기이익(the prior period's earnings), 재무분석가 이익예측치(the earnings forecasts)를 지칭한다. 이 이익수치들은 기업이 달성하여야 할 최소한의 목표수준으로 인식된다. 이 수치들은 정보이용자들의 행동을 유발하는 의사결정기준(an heuristic)이 될 수 있으므로 경영자들은 이 목표이익수치를 달성하려는 동기를 지닌다. 선행연구들은 주식시장에서 임계이익의 충족효과를 검정해 왔으나, 본 연구는 우리나라 부채시장에서 그 효과를 검정하는 것이 목적이다. 회귀분석결과에 의하면, 흑자보고와 이익증가보고가 신용평가에 긍정적인 영향을 주는 것으로 밝혀졌으며, 이익예측치 충족은 영향력이 없는 것으로 나타났다. 흑자보고의 효과는 이익증가보고와 이익예측치 충족의 효과보다 더 큰 것으로 드러났다. 채무불이행위험은 일반적으로 신용등급에 부정적인 영향을 미치지만, 채무불이행위험이 높은 기업이 임계이익을 충족시켰을 때, 채무불이행위험이 낮은 기업에 비해 신용등급에 긍정적인 영향을 미치는 것으로 나타났다. 아울러 기업어음(CP)에 대한 신용등급을 이용하여 동일한 검정을 해 본 결과, 회사채 신용등급과 유사한 결과가 나타났다. 추가하여 이익조정을 통한 임계이익 충족효과를 검정하였다. 이익조정을 통해 임계이익을 충족한 기업과 이익조정 전부터 임계이익을 충족한 기업 간에 신용평가의 차이가 있는지 비교하였다. 그 결과 이익조정을 통해 임계이익을 충족한 기업이 이익조정 전부터 임계이익을 충족한 기업에 비해 차별적으로 불리한 영향을 받지는 않는 것으로 드러났다. 본 연구는 임계이익 충족효과를 부채시장에서 검정하였다는 데 의의가 있다. 기존의 선행연구들은 주식시장에서 임계이익 충족효과를 검정하였으나 본 연구는 부채시장으로 확장하였다. 임계이익충족효과는 주식시장과 부채시장에서 다를 수 있다. 이는 채권소유주와 지분소유주간의 보상구조가 다르고 그에 따른 효용이 다르다는 데 연유한다. 채권시장에서는, 주식시장과 달리, 흑자보고효과가 가장 큰 것으로 밝혀졌다. 이 점은 본 연구의 기여라 할 수 있을 것이다.

Do Firms Engage in Earnings Management to Improve Credit Ratings? : Evidence from KRX Bond Issuers

MALIDAFYDD SIRUS,임형주 한국기업경영학회 2016 기업경영연구 Vol.23 No.1

In this paper, we examine the relationship between credit ratings, credit ratings changes and earnings management. Since the 1997 Asian Financial Crisis, many listed firms collapsed, leading investors to suffer losses. As a result, credit ratings have become a very important indicators of firms’ financial stability for investors, government agencies and debt issuers and other stakeholders. Firms with a similar credit rating are grouped together as firms of similar credit quality (Kisgen 2006) because credit ratings provide an ‘economically meaningful role’ (Boot et al. 2006). Numerous studies find that managers care deeply about their credit ratings (Graham and Harvey 2001; Kisgen 2009; Hovakimian at al. 2009). Firms that borrow equity in the form of bonds may have incentives to increase credit ratings with opportunistic earnings management. A change in a firm’s credit ratings has a direct impact on a firm’s profitability. Firm’s benefit from better terms from suppliers, enjoy better investment opportunities and have lower cost of capital when their credit risk is lower. Firms incur a higher cost of debt and experience additional costs when their credit risk is higher. American studies find that firms use earnings management to influence credit ratings (Ali and Zhang 2008; Jung et al. 2013; Alissa et al 2013). Credit rating agencies have stated they assume financial statements to be reasonable and accurate (Securities and Exchange Commission, 2003; Standard and Poor’s, 2006) and they do not consider themselves to be auditors. They take the information in the financial statements as accurate. Therefore, there is a potential for managers to engage in earnings management to influence credit ratings. In South Korea, there have been numerous experiments with auditor legislation because of financial collapses due to earnings management in the 2000s. Therefore, a decomposition of the relation between opportunistic earnings management and credit ratings is an important consideration for Korean accounting academia. Previous Korean studies have examined whether credit ratings in period t are significantly related to level of earnings management in the same period; however, those studies fail to find the consistent results. It is widely known that credit rating agencies allow one year credit watch period to assess default risk before credit rating decision. Firms with an incentive to increase their credit ratings through earnings management will only realize if earnings management positively influences credit ratings in the following year. Therefore, we focus on establishing a relationship between the levels of earnings management at time t and credit ratings / changes at time t+1. Our study provides a more robust analysis by establishing if both accrual based and real earnings management in period t influences credit ratings and credit rating changes in period t+1. Using a sample of 1,717 Korean KRX firm-years from 2002 to 2013, we find a negative relation between earnings management in period t and credit ratings in period t+1, suggesting that firms with higher credit ratings have lower levels of earnings management. Moreover, we find that firms that experience a credit ratings change in period t+1 are less likely to engage in opportunistic earnings management in period t, suggesting that firms do not have the potential to increase credit ratings. We also find that firms that experience a credit rating increase in period t+1 have a negative association with opportunistic earnings management for accruals measures. Moreover, when we split our sample into firms that experience 1) a credit rating increase, 2) decrease and 3) remaining the same, we find that firms that engage in earnings management are more likely to remain unchanged or experience a credit rating decrease. Thus, taken together, we find no evidence of relationship between opportunistic earnings management and an increase in credit ratings in the South Ko...

이연법인세 정보가 기업신용등급에 미치는 영향― 비상장기업의 실증적 증거 ―

박종일 한국세무사회 부설 한국조세연구소 2014 세무와 회계 연구 Vol.3 No.1

본 연구는 비상장기업을 대상으로 이연법인세 정보가 신용평가기관의 신용등급 결정에 어떻게 고려되는지를 분석하였다. 이전 국내외 연구들은 상장기업을 대상으로 회계이익과 과세소득의 차이와 신용등급 간의 관계를 살펴본 연구는 있지만, 비상장기업에서 산출된 이연법인세 정보와 신용등급 간의 관계를 체계적으로 분석한 연구는 전무했다. 이를 알아보기 위하여, 본 연구는 선행연구의 방법에 따라 이연법인세 정보를 이연법인세비용의 수준과 변동변수로 측정한 후 이를 병행하여 살펴보았다(전규안․박종일, 2009;박종일, 2013 등). 신용등급은 기업평가에 전문성이 있는 NICE신용평가정보㈜에서 산출된 기업신용등급 자료가 이용되었다. 또한 본 연구는 이연법인세 제도가 도입된 비상장기업 중 분석기간 2000년부터 2007년까지 금융업을 제외한 후 이용 가능했던 최종표본 12,928개 기업 / 연 자료를 분석하였다. 본 연구의 실증 결과는 다음과 같다. 첫째, 신용등급에 영향을 미칠 수 있는 일정 변수들뿐만 아니라 재량적 발생액까지 통제한 후에도 수준변수로 측정된 이연법인세비용은 기업신용등급과 유의한 음(-)의 관계가 있는 것으로 나타났다. 하지만 변동변수로 측정된 이연법인세비용은 기업신용등급과 유의한 관계가 나타나지는 않았다. 둘째, 표본을 감사인 규모(Big 4 감사인 여부)로 나누어 추가분석을 수행한 결과에 따르면, 이연법인세비용과 기업신용등급 간에 유의한 음(-)의 관계는 주로 Big 4 감사인이 감사한 표본만 뚜렷한 반응이 나타났다. 이상의 연구 결과를 종합하면 비상장기업에 대한 이연법인세 정보는 신용평가기관에게 이익의 질에 대한 정보위험으로써 평가되어 신용등급에 적절히 반영되고 있음을 시사한다. 하지만 신용평가기관의 경우 수준변수로 측정된 이연법인세비용은 고려되지만 변동변수로 측정된 이연법인세비용은 반영되지는 않았다. 또한 두 변수간의 유의한 관계는 주로 감사품질이 높은 Big 4 감사인이 감사한 경우에서만 신용등급 결정에 고려되는 것으로 나타났다. 따라서 본 연구 결과는 비상장기업에서의이연법인세 정보가 신용등급에 미치는 효과는 이연법인세 측정치에 따라(수준변수 vs 변동변수), 또한 감사품질에 따라(Big 4 감사인 vs non-Big 4 감사인) 다르다는 것을 보여 준다. 일반적으로 신용평가기관이 산출하는 신용등급은 시장에서 투자자와 채권자들의 경제적 의사결정에 중요한 영향을 미치고 있다. 그러한 점에서 본 연구 결과는 이연법인세 관련연구에 추가적으로 공헌할 뿐만 아니라, 비상장시장에서의 이익의 질이나 외부감사 효과에 관심이 있는 학계뿐 아니라 실무계, 채권투자자, 회계기준 제정기관 및 규제기관에게도 여러 유익한 시사점을 더불어 제공해 줄 것으로 기대된다. This paper investigate whether the relation between deferred tax expenses and credit ratings. Specifically, this study analyzes the effects of deferred tax expenses (i.e., temporary book-tax differences) on corporate credit ratings in a non-listed firms setting. A credit rating implications include signaling, maintaining relationships with third parties such as suppliers and customers, and maintaining firms’ credit ratings in line with competitors. A credit rating represents a signal of overall quality in the capital market. So, rating agencies may face fewer incentives to detect earnings management by issuers. Prior research suggests that differences between book-tax differences (BTD) or temporary book-tax differences (DTE) reflect firms’ underlying economic fundamentals and their earnings management activities (e.g., Phillips et al., 2003;Jeon and Park, 2002 etc). For example, Phillips et al. (2003) argue that managers typically have more discretion in financial reporting than in tax reporting and can exploit such discretion to manage income upwards in ways that do not affect current taxable income. Such earnings management will generate book-tax differences that increase a firm’s net deferred tax liability (i.e., deferred tax liabilities [or defined as the change in deferred tax liabilities] minus net deferred tax assets [the change in deferred tax assets];DTE) and, consequently, increase its DTE. Thus, the prior literature on temporary book-tax differences (DTE) provides evidence consistent with the differences providing information about earnings quality(Hanlon, 2005). But, most studies related to the effect of BTD (or DTE) on credit ratings focus on listed companies and test a relationship between BTD (or DTE) and credit ratings. However, a portion of non-listed companies has increased over time and many policies on funding are provided for them. Given the importance of non-listed companies in economic market and different characteristics of reported earnings, it is somewhat surprising that there is a little study that investigate a relationship between DTE and credit ratings using non-listed companies. This study try to fill the gap. Therefore, this study use the level in DTE and change in DTE, a publicly available measure, as their empirical surrogate for temporary book-tax differences (e.g., Phillips et al., 2003;Park, 2013). To do this, this study use credit ratings from KISVALUE. Initially, 1 point represents firms with the best credit rank and 10 point represents firms with the worst credit rank. However, for the purpose of interpretation, This paper remark credit rank oppositely. That is, 1 point represents firms with the worst credit rank and 10 point represents firms with the best credit rank. The sample is non-listed firms which are not listed in security market. This paper uses the total 12,928 firm-year observations for the period from 2000 to 2007. The empirical test results are as follows. First, in the non-listed firms’ sample tests, I do find significantly negative relation between deferred tax expenses (the level in DTE) and credit ratings, after controlling for other variables and discretionary accruals that affect the level of credit ratings. The above results are mostly observed with the level in DTE, but not with the change in DTE. In this case, credit analysts may interpret the high DTE (i.e. where book income is more than taxable income) as a signal of decreased earnings quality, which results in less favorable credit ratings. Second, when I partition full sample into sub-samples based on audit quality (Big 4 auditors vs non-Big 4 auditors), only the negative relation between DTE and credit ratings are more noticeable for firms audited by Big 4 auditors. The findings of this study have contributions in that they suggest the negative relation between DTE and credit ratings may be affected by measures of temporary BTD (level in DTE vs change in DTE) and audit quality (Big 4 au...