Impact of Corporate Governance on Credit Ratings: An Empirical Study in the Indian Context

Abstract

Credit rating is the judgement of a credit rating firm of the creditworthiness of an entity as well as its ability to repay outstanding debt. Prior literature on credit ratings has majorly identified firm-specific characteristics as well as the characteristics of the debt issued as the primary factors affecting credit ratings. However, effective governance mechanisms can affect the credit ratings of a firm by way of their influence on a firm’s default risk. The present article is an attempt to discern the relationship between corporate governance and credit ratings by studying the Bombay Stock Exchange listed Indian firms that received a credit rating from CRISIL for their long-term debt during any of the 5 years from 2013–2014 to 2017–2018. It would add to the existing literature by assessing the association between corporate governance mechanisms and credit ratings in the Indian context since all other studies relate majorly to the Western parts of the world.