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Developments in corporate creditworthiness around ownership events

Developments in corporate creditworthiness around ownership events Purpose – This study seeks to explore developments in corporate creditworthiness before and after ownership events. Design/methodology/approach – The paper uses the Blockholders database of Dlugosz, Fahlenbrach, Gompers, and Metrick, and three credit quantities, and deploys a standard event study methodology to examine the relation to corporate creditworthiness. Findings – The paper discovers that ownership‐construction is generally associated with prior‐ and post‐improvement in creditworthiness, while a block‐destruction is typically surrounded by deterioration in corporate creditworthiness. The paper also finds proper evidence for a relation between the construction or destruction of managerial block and future developments in corporate creditworthiness. The paper further realizes that outside shareholders exhibit higher impact than inside block‐holders on later variations in credit risk. Research limitations/implications – The paper is unable to conduct further robustness checks with structural credit methodologies due to the reduced number of valid observations. Originality/value – Market participants can utilize the conclusions to better predict future trends in corporate creditworthiness. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Managerial Finance Emerald Publishing

Developments in corporate creditworthiness around ownership events

International Journal of Managerial Finance , Volume 7 (4): 20 – Sep 26, 2011

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
1743-9132
DOI
10.1108/17439131111166384
Publisher site
See Article on Publisher Site

Abstract

Purpose – This study seeks to explore developments in corporate creditworthiness before and after ownership events. Design/methodology/approach – The paper uses the Blockholders database of Dlugosz, Fahlenbrach, Gompers, and Metrick, and three credit quantities, and deploys a standard event study methodology to examine the relation to corporate creditworthiness. Findings – The paper discovers that ownership‐construction is generally associated with prior‐ and post‐improvement in creditworthiness, while a block‐destruction is typically surrounded by deterioration in corporate creditworthiness. The paper also finds proper evidence for a relation between the construction or destruction of managerial block and future developments in corporate creditworthiness. The paper further realizes that outside shareholders exhibit higher impact than inside block‐holders on later variations in credit risk. Research limitations/implications – The paper is unable to conduct further robustness checks with structural credit methodologies due to the reduced number of valid observations. Originality/value – Market participants can utilize the conclusions to better predict future trends in corporate creditworthiness.

Journal

International Journal of Managerial FinanceEmerald Publishing

Published: Sep 26, 2011

Keywords: Block holders; Ownership event; Creditworthiness; Altman Z‐Score; CFBM‐Score; Ohlson O‐Score; Shareholders; Corporate ownership

References