Credit rating actions could discipline management to improve asset allocations, but may also trigger corporate responses to alleviate financial constraints. We investigate which effect (if any) dominates, using corporate asset sales as a laboratory. Our empirical tests are guided by a novel model that can generate both effects and yields several predictions to distinguish the two channels.
We find empirically that firms conduct more asset sales following downgrades. Our model and a novel placebo test mitigate omitted variables concerns regarding this result. Further tests provide evidence that strongly points towards a financial constraints effect and hardly to a discipline effect.
What makes independent directors perform their monitoring duty? One possible reason is that they are concerned about being sanctioned by regulators if...
In this paper, we investigate whether reform of EU company law is needed to make corporate governance more sustainable through an analysis of some of the...