Asset redeployability and credit ratings

Abstract

We examine the relationship between asset redeployability and credit ratings. Firms with more redeployable assets enjoy higher levels of liquidity, and hence are resilient to unexpected liquidity shocks. Such benefits increase the creditworthiness of firms with more redeployable assets, and so they are perceived favorably by rating agencies. High-asset-redeployability firms also suffer from less information asymmetry, which likely increases their credit ratings. We therefore posit a positive relationship between asset redeployability and credit ratings and find supporting evidence for a sample of US firms. Our results remain robust to possible endogeneity concerns. We also find that tax avoidance and information asymmetry mediate the relationship between asset redeployability and credit ratings.