Signals influencing corporate credit ratings—a systematic literature review

Abstract

The risk associated with the firm’s ability to pay off its outstanding debt is captured by credit ratings. Credit rating agencies, providers of issuer’s creditworthiness information, use various factors to arrive at credit ratings. With an intent to identify the drivers of corporate credit ratings (CCR), the present study conducts a systematic review of the literature on determinants of CCR from January 2001 to June 2021. Based on a comprehensive analysis of 99 empirical studies on determinants of CCR, the factors influenc- ing CCR are divided into three broad categories— financial, non-financial and economic factors. The results show that financial factors have been exten- sively used, whilst non-financial factors like corporate governance and corporate social responsibility mea- sures are gaining importance. The identified emerging factors and the factors having mixed evidence in the literature provide direction for future research. It also suggests building a comprehensive model based on the identified factors to gauge additional information provided by different categories of factors. The study will help academicians, investors, issuers, regulators and policymakers to understand the dynamics of credit risk evaluation.