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Lim, Hyoung-Joo and Mali, Dafydd 
ORCID: https://orcid.org/0000-0003-3582-2429
(2024)
Does market performance (Tobin’s Q) have a negative effect on credit ratings? Evidence from South Korea.
Asia-Pacific Financial Markets, 31 (1).
pp. 53-80.
ISSN 1387-2834
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Abstract
Tobin’s Q is an established measure of firm performance, based on investor confidence. However, the association between Tobin’s Q and credit ratings is not well-established in the literature. Using a sample of Korean listed firms over the 2001–2016 sample period, Probit regression analysis shows that overall, Tobin’s Q is positively associated with credit ratings. However, for firms with a > 1 (1 <) Tobin’s Q ratio, a negative (positive) relationship exists. Moreover, in independent regressions, a threshold level if found where the effect of Tobin’s Q on credit ratings changes from being positive (0.2), to negative (0.3). To the best of our knowledge, we are the first to demonstrate that credit rating agencies are nuanced when making default risk assessments. Specifically, that in South Korea, a threshold level exists, at which increasing Tobin’s Q values reduce credit ratings. Empirical evidence of the different association between Tobin’s Q (market confidence) and credit ratings can extend the literature and offer insights to market participants. Furthermore, because Tobin’s Q is a commonly used proxy for financial performance in accounting lectures, the study has practical implications for academics in classrooms.
| Item Type: | Article |
|---|---|
| Additional Information: | Funding Information: All persons who have made substantial contributions to the work reported in the manuscript (e.g., technical help, writing and editing assistance, general support), but who do not meet the criteria for authorship, are named in the Acknowledgements and have given us their written permission to be named. If we have not included an Acknowledgements, then that indicates that we have not received substantial contributions from non-authors. Publisher Copyright: © The Author(s) 2023. |
| Uncontrolled Keywords: | accounting education,credit ratings,m15,m21,m40,m41,overvaluation,tobin’s q,finance ,/dk/atira/pure/subjectarea/asjc/2000/2003 |
| Faculty \ School: | Faculty of Social Sciences > Norwich Business School |
| Related URLs: | |
| Depositing User: | LivePure Connector |
| Date Deposited: | 27 Aug 2024 13:30 |
| Last Modified: | 25 Sep 2024 18:03 |
| URI: | https://ueaeprints.uea.ac.uk/id/eprint/96358 |
| DOI: | 10.1007/s10690-023-09406-x |
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