Effect of Managerial Overconfidence on Corporate Credit Ratings
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[Purpose] This study explores the effects of managerial overconfidence on corporate credit ratings from a managerial psychology perspective. [Methodology] This study uses non－financial listed South Korean companies in 2013－2017 as samples, collects data on the KIS corporate credit ratings of sampled companies, and employs a composite financial index to measure managerial overconfidence. The ordered probit regression model is established to test the research hypothesis. [Findings] The study findings reveal that credit rating agencies are concerned with managerial overconfidence; specifically, managerial overconfidence lowers corporate credit ratings. The study reveals that regardless of size and grouping by stock markets, the reduction in credit ratings by managerial overconfidence did not differ significantly. [Implications] First, corporate credit ratings are investigated from the perspective of managerial overconfidence, which is a new way to approach the topic. Second, relevant studies mainly use single variables to measure managerial overconfidence. The present study uses composite variables instead; the consideration of more information facilitates the optimization of the assessment of managerial overconfidence. Third, the identification of factors influencing corporate credit ratings serves as a valuable reference for firms to loosen their financing constraints.
Abstract
[Purpose] This study explores the effects of managerial overconfidence on corporate credit ratings from a managerial psychology perspective. [Methodology] This study uses non－financial listed South Korean companies in 2013－2017 as samples, collects data on the KIS corporate credit ratings of sampled companies, and employs a composite financial index to measure managerial overconfidence. The ordered probit regression model is established to test the research hypothesis. [Findings] The study findings reveal that credit rating agencies are concerned with managerial overconfidence; specifically, managerial overconfidence lowers corporate credit ratings. The study reveals that regardless of size and grouping by stock markets, the reduction in credit ratings by managerial overconfidence did not differ significantly. [Implications] First, corporate credit ratings are investigated from the perspective of managerial overconfidence, which is a new way to approach the topic. Second, relevant studies mainly use single variables to measure managerial overconfidence. The present study uses composite variables instead; the consideration of more information facilitates the optimization of the assessment of managerial overconfidence. Third, the identification of factors influencing corporate credit ratings serves as a valuable reference for firms to loosen their financing constraints.
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