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다국어 초록 (Multilingual Abstract)

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...

참고문헌 (Reference)

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