Managerial ability and bond rating changes

Abstract

This study examines the relation between managerial ability and bond credit rating changes. We attempt to add to the credit rating agency literature by exploring the role managerial ability plays in the initial bond rating assignments and in rating changes. We predict firms with more-able managers are more likely to have higher bond ratings and to be more able to have a positive influence on rating changes. We find a significant and positive relation between managerial ability and change in credit ratings, suggesting that more-able managers can take effective actions to improve their credit ratings.