The Journal of Finance

Have Rating Agencies Become More Conservative? Implications for Capital Structure and Debt Pricing

Published: 03/27/2014   |   DOI: 10.1111/jofi.12153

RAMIN P. BAGHAI, HENRI SERVAES, ANE TAMAYO

Rating agencies have become more conservative in assigning corporate credit ratings over the period 1985 to 2009; holding firm characteristics constant, average ratings have dropped by three notches. This change does not appear to be fully warranted because defaults have declined over this period. Firms affected more by conservatism issue less debt, have lower leverage, hold more cash, are less likely to obtain a debt rating, and experience lower growth. Their debt spreads are lower than those of unaffected firms with the same rating, which implies that the market partly undoes the impact of conservatism on debt prices. This evidence suggests that firms and capital markets do not perceive the increase in conservatism to be fully warranted.

Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis

Published: 03/19/2017   |   DOI: 10.1111/jofi.12505

KARL V. LINS, HENRI SERVAES, ANE TAMAYO

During the 2008–2009 financial crisis, firms with high social capital, as measured by corporate social responsibility (CSR) intensity, had stock returns that were four to seven percentage points higher than firms with low social capital. High‐CSR firms also experienced higher profitability, growth, and sales per employee relative to low‐CSR firms, and they raised more debt. This evidence suggests that the trust between a firm and both its stakeholders and investors, built through investments in social capital, pays off when the overall level of trust in corporations and markets suffers a negative shock.