Foreign cash, repatriation, and credit ratings: Evidence from U.S. multinationals

2021 ◽  
Author(s):  
Bing Luo ◽  
Lufei Ruan
Keyword(s):  
Financial Reporting ◽  
Private Information ◽  
Credit Ratings ◽  
Cash Holdings ◽  
Reporting Quality ◽  
Financial Health ◽  
Endogeneity Bias ◽  
Positive Correlation ◽  
Rating Agencies ◽  
Foreign Countries

U.S. multinationals hold record-high foreign cash levels and commit not to repatriate foreign cash “in the foreseeable future” to qualify for deferring tax. We argue that such commitments reveal firms’ private information of short-term financial health and thus is a positive factor in credit risk assessments. Using a sample of listed U.S. multinationals in 2009-2016, we document a positive correlation between foreign cash holdings and credit ratings, confirming that rating agencies positively perceive foreign cash holdings. We further find that the positive correlation is stronger in firms with low repatriation costs, in firms that operate in fewer foreign countries, and in firms with poorer financial reporting quality. Our results still hold when applying different identification strategies, reducing the likelihood that our results are purely driven by endogeneity bias.

scholarly journals Financial Reporting Quality and Uncertainty about Credit Risk among Ratings Agencies

2017 ◽  
Vol 93 (4) ◽  
pp. 1-22 ◽  
Author(s):  
Brian Akins
Keyword(s):  
Credit Risk ◽  
Financial Reporting ◽  
Private Information ◽  
Credit Rating ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Rating Agencies ◽  
Market Participants ◽  
Debt Market ◽  
The Impact

ABSTRACT This study finds that better reporting quality is associated with less uncertainty about credit risk as captured by disagreement among the credit rating agencies. The results also show that reporting quality is more important in reducing uncertainty when debt market participants have less access to private information. To mitigate endogeneity concerns, I use the quasi-natural experiment induced by a change in accounting standards that improved reporting quality. Implementation of the standard led to less disagreement among the rating agencies. Overall, this study contributes to the literature on the impact of reporting quality on debt markets and intermediaries.

Short-Term Debt Maturity Structures, Credit Ratings, and the Pricing of Audit Services

2010 ◽  
Vol 85 (3) ◽  
pp. 877-909 ◽  
Author(s):  
Ferdinand A. Gul ◽  
John Goodwin
Keyword(s):  
Financial Reporting ◽  
Credit Ratings ◽  
Reporting Quality ◽  
Audit Fees ◽  
Debt Maturity ◽  
Financial Reporting Quality ◽  
Risk Governance ◽  
Governance Mechanisms ◽  
Short Term ◽  
Rating Agencies

ABSTRACT: Short-term debt and credit ratings have benefits for financial reporting quality that may be associated with lower audit fees. Using U.S. data for 2003 through 2006, we find that short-term debt is negatively related to audit fees for firms rated by Standard & Poor’s, consistent with more monitoring and better governance mechanisms in firms with higher short-term debt. Credit ratings quality is negatively related to audit fees, consistent with ratings quality reflecting a firm’s liquidity risk, governance mechanisms, and monitoring from rating agencies. We also find that the negative relation between short-term debt and audit fees is stronger for firms with low-quality credit ratings, consistent with auditors pricing lender monitoring.

Financial Reporting Quality, Investment Horizon, and Institutional Investor Trading Strategies

2018 ◽  
Vol 94 (3) ◽  
pp. 87-112 ◽  
Author(s):  
Brian J. Bushee ◽  
Theodore H. Goodman ◽  
Shyam V. Sunder
Keyword(s):  
Financial Reporting ◽  
Private Information ◽  
Reporting Quality ◽  
Trading Strategies ◽  
Financial Reporting Quality ◽  
Investment Horizon ◽  
Investment Strategies ◽  
Holding Costs ◽  
Value Stocks ◽  
Fundamental Value

ABSTRACT This paper provides evidence that financial reporting quality (FRQ) influences the holding costs of trading strategies. While prior research has focused on the benefits of investment strategies based on poor FRQ (i.e., larger returns due to a greater amount of private information), we examine whether poor FRQ imposes greater holding costs on certain trading strategies. We show that poor FRQ motivates sophisticated investors with short-term horizons to tilt their portfolios away from value stocks, whose returns are contingent on investors revising their beliefs about firm fundamental value, and toward past winner stocks, whose future returns are realized more quickly. Poor FRQ also increases the length of time that institutions maintain large positions in value stocks. Our results imply that mis-valuations can be persistent when arbitrageurs perceive high holding costs from poor financial quality, even when they can see through the opaque financial disclosures.

scholarly journals The impact of earnings management on cash holdings of listed firms in Vietnam

2021 ◽  
Vol 5 (3) ◽  
pp. first
Author(s):  
Nguyễn Thanh Liêm ◽  
Thùy Thị Miên Cao ◽  
Thanh Phú Ngô
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Agency Costs ◽  
Negative Relationship ◽  
Cash Holdings ◽  
Reporting Quality ◽  
Agency Cost ◽  
Important Indicator ◽  
Research Results ◽  
The Impact

Research on the impact of earnings management on corporate cash holdings has yielded inconsistent results. In this research, we investigate the relationship between earnings management and cash holdings of non-financial firms listed on the Vietnamese stock market over the period 2011- 2019. The research results show the negative effect of earnings management on cash holdings, which exists especially for businesses facing high agency costs. This evidence suggests that the negative relationship stems from the adverse impact of earnings management on financial reporting quality. This result is robust to a variety of approaches to deal with the endogenous problems and defects of the model, as well as the use of two different measures of agency cost. An implication from the result is such management increases information asymmetry, which makes it unfit for businesses to keep more cash due to the excessive increase in agency costs. Therefore, the research results have important theoretical contributions and practical implications for both investors and policymakers: earnings management is an important indicator of corporate cash-holding policy.

scholarly journals Does CEO tenure influence corporate bond rating properties?

2015 ◽  
Author(s):  
◽  
Xia Zhang
Keyword(s):  
Information Sharing ◽  
Private Information ◽  
Credit Ratings ◽  
Public Information ◽  
Strategic Communication ◽  
Corporate Bond ◽  
Bond Rating ◽  
Rating Agencies ◽  
Ceo Tenure ◽  
The Impact

This study examines whether and how corporate bond rating quality varies with CEO tenure. Due to the expansive roles of credit ratings in capital market, managers have incentives to maintain or improve their ratings. Accumulated firm experience makes longer-tenured CEOs better at strategic communication with rating agencies and thereby more able to achieve the desired rating outcomes, leading to lower rating quality. Consistent with this prediction, I find that ratings are less accurate, less timely, and more volatile for issuers with longer-tenured CEOs. All these results hold after controlling for the impact of CEO tenure through public information sharing, suggesting that longer-tenured CEOs manage credit ratings through private information sharing with rating agencies. Moreover, investors do not understand such rating management by longer-tenured CEOs.

scholarly journals Non-Financial Reporting of Industrial Corporations – A Czech Case Study

2020 ◽  
Vol 68 (3) ◽  
pp. 625-636
Author(s):  
Jaroslav Sedláček
Keyword(s):  
Multinational Corporations ◽  
Financial Reporting ◽  
Reporting Quality ◽  
Quality Of Reporting ◽  
Chi Square ◽  
Positive Correlation ◽  
The Public ◽  
Negative Impacts ◽  
And Performance

Scientific research and studies from recent years point to the growing interest of large multinational corporations in publishing reports that inform the public not only about their performance, but also about their behavior in terms of social responsibility and long-term sustainability. These are not only effects in the context of their success, but also the negative impacts of their environmental, social and administrative activities. Although corporate responsibility reporting integrating financial and non-financial information is becoming a standard practice, these approaches have not yet been investigated or published in the Czech region. Therefore, the aim of the research was to determine how the new quality of reporting is perceived by Czech industrial corporations. Data for empirical research were excerpted from reports published in 2018. To verify the generally perceived assumption of a positive correlation between the size of corporations and the quality of their reports, respectively between reporting quality and corporate performance, eight hypotheses have been formulated. The Chi-Square independence test was used to confirm or refute the hypotheses. The tests confirmed a significant dependence of reporting quality on the size of the corporation. A positive correlation was also found between quality of report and performance, but the expected negative correlation between indebtedness could not be demonstrated.

scholarly journals Does the use of hedge derivatives improve the credit ratings of Brazilian companies?

2020 ◽  
Vol 31 (82) ◽  
pp. 50-66
Author(s):  
Rafael Moreira Antônio ◽  
Marcelo Augusto Ambrozini ◽  
Vinícius Medeiros Magnani ◽  
Alex A. T. Rathke
Keyword(s):  
Financial Reporting ◽  
Panel Data Analysis ◽  
Credit Ratings ◽  
Assessment Process ◽  
Financial Instruments ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Publicly Traded Companies ◽  
Rating Agencies ◽  
The Impact

ABSTRACT The purpose of this study is to identify the factors that may explain the attribution of credit ratings to firms, focusing especially on the impact of derivatives. The gap explored by this research lies in the novelty of analyzing how rating agencies perceive the effects caused by information related to derivatives use by Brazilian publicly-traded companies. In addition, this study shifts the previous findings from stock analysts to rating agencies, reinforcing the discussion about the complexity of derivatives in the credit risk assessment process. This research topic is currently of interest due to the adoption of International Financial Reporting Standard (IFRS) 9 (Accounting Pronouncements Committee - CPC - 48), which came into effect in January of 2018. Based on these rules, the main novelty presented in this article was its verification of the effect of the derivatives used by companies in order to hedge their credit ratings, thus helping to fill the empirical gap that exists in the literature from the area. The results found challenge the theory that the use of hedge derivatives is viewed positively by investors. However, although no significant statistical impact was found on the ratings of companies that use derivatives, it was observed that the companies that use derivatives and have the highest notional values were those that received the best ratings from Moody’s. With this we broadened the debate about the complexity of the information linked to derivatives use. In the study, 2,090 ratings attributed to non-financial companies with stocks traded on the Brasil, Bolsa, Balcão [B]³ exchange were examined between 2010 and 2016 by using panel data analysis, which lends robustness to the analysis and findings. Contrary to the central hypothesis of this research, the results presented here show that, in Brazil, companies that use derivative financial instruments for hedging do not receive the best credit ratings from rating agencies. One of the main contributions of this study is the evidence that Standard & Poor’s and Moody’s were unable to consistently incorporate information related to derivatives use, thus broadening the discussion about the complexity of these financial instruments.

Analysis of Unsolicited Credit Ratings in Japan: New Evidence from Moody's

2009 ◽  
Vol 12 (01) ◽  
pp. 103-123 ◽  
Author(s):  
Lisa M. Fairchild ◽  
Susan M. V. Flaherty ◽  
Yoon S. Shin
Keyword(s):  
Private Information ◽  
Credit Ratings ◽  
Public Information ◽  
Inside Information ◽  
Rating Agencies ◽  
Rating Agency ◽  
Japanese Firms ◽  
Unsolicited Ratings ◽  
Available Information ◽  
New Evidence

Previous studies show that the unsolicited ratings of S&P and Fitch are lower than the solicited ratings assigned by these two agencies. The unsolicited ratings of S&P and Fitch are based on publicly available information for a firm. However, no previous study has examined the unsolicited ratings of Moody's because Moody's does not disclose whether its ratings are solicited or unsolicited. Using Moody's solicited and unsolicited ratings collected from a survey of Japanese firms, we find that unsolicited credit ratings are still lower than solicited ratings even though firms with unsolicited ratings provide Moody's with some degree of inside information. We also compare the unsolicited ratings of S&P with those of Moody's and find that Moody's ratings are no different than those assigned by S&P although S&P's unsolicited ratings are based on public information. Therefore, we conclude that, regardless of the rating agency, unsolicited ratings are lower than solicited ratings because firms with unsolicited ratings provide incomplete private information to rating agencies.

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