Abstract
We examine the impact of insiders' stock pledging disclosures on credit ratings of different debt instruments in India. The rating agencies extend a negative response in the form of low credit ratings for pledging firms compared to non-pledging firms - irrespective of any particular debt choice (private versus public) and debt maturity (short-term versus long-term). Insider stock pledging increases the likelihood of credit rating downgrade and the rating-watch status. It contains information about pledging firms' debt-servicing capacity and adversely affects credit ratings for firms with higher information asymmetry. Our findings also support an increase in the cost of debt for pledging firms.
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