Does ownership structure improve credit ratings?

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Aws AlHares ORCID logo, David King, Collins Ntim ORCID logo, Ron Byrne


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This study seeks to examine the impact of Block Ownership structure on Credit Ratings in OECD countries. This research seeks to contribute to the extant literature by exploring the effects of Corporate Governance (CG) mechanisms on corporate credit ratings. The study uses a panel data of 200 companies from Anglo American and European countries between 2010 and 2014. The ordinary least square regression is used to examine the relationships. Additionally, to alleviate the concern of potential endogeneity, we use fixed effect regression, two-stage least squares using instrumental variables. The results show there is a negative and significant relationship between block ownership and credit ratings, with a greater significance among Anglo American countries than among European countries. The rationale for this is that Anglo-American system gives preferential treatment to individual shareholders and its accounting tradition leads to a decline in risk and increase in credit ratings. The result is consistent with the multi-theoretical framework predictions derived from the agency and stewardship theories. Future research could investigate credit ratings using other credit rating agencies, selecting a larger sample that includes small, mid-size and large companies. This paper extends, as well as contributes to extant CG literature by offering new evidence on the effect of block ownership on credit ratings between two different traditions. This will be explored by employing firm-level CG mechanisms by accounting for control variables. The findings will help regulators and policymakers in OECD countries in evaluating the adequacy of current CG reforms to prevent management misconduct and scandals.

Keywords: Credit Ratings, Corporate Governance, Audit Committee, OECD, Block Ownership, Standard & Poor’s, Culture, Legal System

JEL Classification: G3, K4, G32

Received: 15.02.2017

Accepted: 18.04.2018

Published online: 26.04.2018

How to cite this paper: AlHares, A., Ntim, C., King, D., & Byrne, R. (2018). Does ownership structure improve credit ratings? Journal of Governance & Regulation, 7(2), 22-33.