Abstract
Corporate governance is the way of governing a firm in order to increase its accountability and to avoid any massive damage before it occurs. The aim of this paper is to investigate the impact of capital structure, firms’ size, and competitive advantages of firms as control variables on credit ratings. We investigate the role of corporate governance in improving the firms’ credit rating using a sample of Jordanian listed firms. We split firms into four categories according to WVB credit rating. We use both the binary logistic regression (LR) and the ordinal logistic regression (OLR) to model credit ratings in Jordanian environment. The empirical results show that the control variables are strong determinants of credit ratings. When we evaluate the relationship between the governance variables and credit ratings, we found interesting results. The board stockholders and board expertise are moderately significant. The board independence and role duality are weakly significant, while board size is insignificant.
Highlights
Creditworthiness is the ability of a given corporation to fully meet its financial obligations as they come due
This paper studied the effects of good corporate governance practices on the firm performance and firm value
We split firms into four categories according to World Vest Base (WVB) credit rating: from BB1 to D
Summary
Creditworthiness is the ability of a given corporation to fully meet its financial obligations as they come due. We conduct empirical analysis to examine the relationship between the considered corporate governance variables and the firms’ credit ratings. Only few studies [7,8,9] have discussed the application of such theories to credit rating in a developed country context These theories enrich the research in the area of credit rating by adding supportive power to the explanation of using factors which have an influence on the credit rating. The current research makes a contribution by investigating some new variables not used before in this context of credit rating. These variables are related to company corporate governance variables, such as, the role duality and the board size.
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