Strategic archetypes, credit ratings, and cost of debt  

Dang, M., Puwanenthiren, P., Jones, E., Nguyen, T.Q., Vo, X.V. and Nadarajah, S. 2022. Strategic archetypes, credit ratings, and cost of debt  . Economic Modelling. 114 105917. https://doi.org/10.1016/j.econmod.2022.105917

TitleStrategic archetypes, credit ratings, and cost of debt  
TypeJournal article
AuthorsDang, M., Puwanenthiren, P., Jones, E., Nguyen, T.Q., Vo, X.V. and Nadarajah, S.
Abstract

We examine the impact of archetypes of strategic behavior in business, proposed by Miles and Snow (1978, 2003), on corporate credit ratings. Using a sample of U.S. non-financial firms between 1981 and 2016, we document that firms with prospector-type strategies experience significantly lower credit ratings than firms with defender- and analyzer-type approaches. Our results remain robust after controlling for firm fixed effects, using alternative model approaches, propensity score matching approach, and alternative measures. The negative effect on credit ratings is more pronounced in firms with weaker information and governance settings and during periods of high economic policy uncertainty. Further, we find prospector-type firms with weak credit ratings have a higher cost of debt. Overall, our findings stress the need for more transparent and stringent governance systems for prospector-type firms to receive favorable ratings.

KeywordsStrategic archetypes
Credit ratings
Cost of debt
Information environment
Corporate governance
Policy uncertainty
Article number105917
JournalEconomic Modelling
Journal citation114
ISSN0264-9993
Year2022
PublisherElsevier
Accepted author manuscript
License
CC BY-NC-ND 4.0
File Access Level
Open (open metadata and files)
Digital Object Identifier (DOI)https://doi.org/10.1016/j.econmod.2022.105917
Publication dates
Published online03 Jun 2022
Published in printSep 2022

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