Business, Management and Accounting
3 years ago

High Credit Ratings Lead to Lower Debt Levels for Indonesian Firms

Universal Journal of Accounting and Finance
The Impact of International and National Credit Rating Level on Capital Structure Optimization: Evidence from Indonesia Non-Financial Listed Firms
Christina Christina, Mandra Lazuardi Kitri

Paper Summary

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Credit ratings impact how firms decide on their debt levels. A study on Indonesian non-financial firms found that Standard & Poor's and Fitch ratings show a U-shaped relationship with debt levels. Low and high rated firms tend to have more debt, while mid-rated firms have less. Moody's rating had the opposite effect, and PEFINDO's rating didn't show a significant impact. This suggests that credit ratings play a crucial role in firms' capital structure decisions.