How does national culture affect the spillover effects of sovereign ratings on corporate ratings?

Abstract

The purposes of this research are first to investigate the effects of national culture on corporate ratings and further explore whether the positive spillover effects of sovereign ratings on corporate ratings will be influenced by national culture. Based on the dataset of 737 publicly traded firms from 44 countries across the (0, 21) window and 499 publicly traded firms from 36 countries across the (0, 3) window during the period from 2000 to 2016, our research reveals that changes in sovereign credit ratings positively impact corporate credit rating actions, particularly in the financial industry. The national culture of power distance and muscularity (individualism and long-term orientation) has a positive (negative) impact on corporate rating actions. Furthermore, the results show that national culture significantly affects the spillover effects. Specifically, the positive spillover effects reverse with higher power distance and are more pronounced with a greater long-term orientation. The main contribution of this research is to shed lights on the vital role national culture plays in the spillover effects.