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Insiders' stock pledging disclosures and credit ratings: Evidence from India

journal contribution
posted 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.

History

Journal

Pacific Basin Finance Journal

Volume

75

Article number

ARTN 101829

ISSN

0927-538X

eISSN

1879-0585

Language

English

Publication classification

C1 Refereed article in a scholarly journal

Publisher

ELSEVIER