Resumo

This study investigated the influence of credit ratings on the financial performance of companies listed in the S&P 500 index. The researchers discovered a lack of research in this area, with only two studies found, one proposing the use of credit ratings as a measure of financial performance and another applying this concept. Most existing research predominantly relies on measures such as leverage, profitability, liquidity, and share return to explain financial performance. To address this gap, the study conducted an empirical analysis using panel data regression models.

The study aims to evaluate the impact of credit ratings on financial performance measures. The dependent financial performance variables considered in this study are Return on Assets (ROA) and Tobin's Q (TQ). The independent variables include Credit Ratings, Total Debt to Total Assets (TDTA), Total Shareholder Return (TSR), EBITDA Interest coverage (EBITDAICOV), Quick Ratio (QR), Altman's Z-Score (AZS), and macroeconomic factors

The credit default theory, as advocated by Sy (2007), underscores the importance of understanding lending risk and effectively measuring and managing credit risk for maintaining financial system stability. Eisenhardt (1989), concluded that agency theory provides valuable insights into information systems, outcome uncertainty, incentives, and risk. Burton (2018), argued in favor of the Efficient Market Theory (EMT) in finance. He assumed that financial markets are efficient, meaning that asset prices fully mirror all available information.

Panel regression is a statistical method commonly employed when studying data collected over multiple periods for multiple individuals, firms, countries, or any other observation unit. Our study opted for fixed effects models as the most appropriate after comparing (1) fixed effects versus Pooled, (2) random effects versus Pooled, and (3) fixed effects versus random. As we advanced, heteroscedasticity was tested using the Breusch-Pagan test. In this test, the null hypothesis of homoscedasticity was rejected as Prob>chi2=0.0000 is lower than 0.05. Finally, The Wooldridge test was applied.

Regarding ROA, the fixed effects panel regression initially indicated a strong positive association between credit ratings and ROA, suggesting that an improvement in credit ratings is reflected in a more robust financial performance. For TQ, the findings revealed that credit ratings, EBITDAICOV, AZS, and GDP had a negative impact on TQ, showing statistical significance at 1%. Conversely, the CPI and the FDRI positively influenced TQ, with statistical significance at 1% and 5%, respectively. Meanwhile, Liquidity (QR) and TSR were not statistically significant to TQ.

Similar studies could be conducted for future research using credit ratings from other major CRAs such as Moody's and Fitch. Additionally, exploring other dependent variables to measure financial performance, such as Return on Equity (ROE), Market Share, and Return on Invested Capital, could provide further insights in future studies.

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