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Unveiling the impact of foreign competition on the bond market: Insights from S&P debt ratings

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  • Lasantha, Ruwan
  • Tawiah, Vincent
  • Atif, Muhammad
  • Puwanenthiren, Prem
  • Nadarajah, Sivathaasan

Abstract

This study investigates the influence of foreign competition on U.S. firms’ debt ratings. The findings reveal a significant downgrade in ratings with increased foreign competition, in particular affecting firms with prospector strategies, low organizational capital, high information asymmetry, weak governance, and reshaping creditworthiness assessment.

Suggested Citation

  • Lasantha, Ruwan & Tawiah, Vincent & Atif, Muhammad & Puwanenthiren, Prem & Nadarajah, Sivathaasan, 2024. "Unveiling the impact of foreign competition on the bond market: Insights from S&P debt ratings," Economics Letters, Elsevier, vol. 241(C).
    • Handle: RePEc:eee:ecolet:v:241:y:2024:i:c:s0165176524002817
    DOI: 10.1016/j.econlet.2024.111797
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    References listed on IDEAS

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    1. Atawnah, Nader & Balachandran, Balasingham & Duong, Huu Nhan & Podolski, Edward J., 2018. "Does exposure to foreign competition affect stock liquidity? Evidence from industry-level import data," Journal of Financial Markets, Elsevier, vol. 39(C), pages 44-67.
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    4. Klaus M. Schmidt, 1997. "Managerial Incentives and Product Market Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(2), pages 191-213.
    5. Laurent Frésard & Philip Valta, 2016. "How Does Corporate Investment Respond to Increased Entry Threat?," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 5(1), pages 1-35.
    6. Valta, Philip, 2012. "Competition and the cost of debt," Journal of Financial Economics, Elsevier, vol. 105(3), pages 661-682.
    7. Atawnah, Nader & Zaman, Rashid & Liu, Jia & Atawna, Thaer & Maghyereh, Aktham, 2023. "Does foreign competition affect corporate debt maturity structure? Evidence from import penetration," International Review of Financial Analysis, Elsevier, vol. 86(C).
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Foreign competition; Debt ratings; Governance; Creditworthiness;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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