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Credit ratings and social capital

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  • Hossain, Ashrafee
  • Hossain, Takdir
  • Jha, Anand
  • Mougoué, Mbodja

Abstract

We posit that credit ratings are higher for firms headquartered in high social capital regions, where managers are more likely to be trustworthy. To test this hypothesis, 9460 corporate debt ratings of US firms from 2001– 2015 was examined. We find that firms headquartered in a county with high social capital in the US have a higher credit rating. This effect is incremental and economically comparable to that of corporate social responsibility. Additional tests suggest that the impact of social capital on ratings is likely because analysts find them more credible. We conclude that credit analysts may consider the social norm around the firm's headquarters when rating firms.

Suggested Citation

  • Hossain, Ashrafee & Hossain, Takdir & Jha, Anand & Mougoué, Mbodja, 2023. "Credit ratings and social capital," Journal of Corporate Finance, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:corfin:v:78:y:2023:i:c:s092911992200181x
    DOI: 10.1016/j.jcorpfin.2022.102338
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    More about this item

    Keywords

    Social capital; Credit rating; Social norm; Financial crisis; CSR; Trust;
    All these keywords.

    JEL classification:

    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G40 - Financial Economics - - Behavioral Finance - - - General

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