File(s) under permanent embargo
Insiders' stock pledging disclosures and credit ratings: Evidence from India
journal contributionposted on 24.11.2022, 04:54 authored by A Singh, Harminder SinghHarminder Singh
We examine the impact of insiders' stock pledging disclosures on credit ratings of different debt instruments in India. The rating agencies extend a negative response in the form of low credit ratings for pledging firms compared to non-pledging firms - irrespective of any particular debt choice (private versus public) and debt maturity (short-term versus long-term). Insider stock pledging increases the likelihood of credit rating downgrade and the rating-watch status. It contains information about pledging firms' debt-servicing capacity and adversely affects credit ratings for firms with higher information asymmetry. Our findings also support an increase in the cost of debt for pledging firms.