The Relation Between Credit Rating, Corporate Governance, Firm Performance And Stock Returns: Evidence From Pakistani Listed Firms
Author: Rubina Shaheen

The first aim of this study is to investigate the determinants of credit ratings of firms in Pakistan. Secondly, this study also examined the effect of credit ratings on firm performance and stock return for firms in Pakistan. Financial attributes, corporate governance attributes and business conditions are considered to achieve the objectives of this study. For empirical analysis of this study, panel data of 63 financial and nonfinancial firms rated by Pakistan Credit Rating Agency (PACRA) and Karachi Stock Exchange covering period from 2007-2011 is used on the basis of availability of data. The results are obtained by applying two estimation techniques. First, to estimate the determinants of credit rating Ordered Probit approach is used. Second, the generalized method of moments (GMM) technique is applied on panel data to estimate the relationship between credit rating and firm performance and also for credit ratings and stock returns. The results illustrate that firm specific factors and corporate governance attributes important factors in predicting firms‟ credit rating in Pakistan. The analysis suggests that, firms with higher credit ratings have higher corporate performance. Moreover, the results reveal that firm with higher credit ratings tends to have higher stock returns. Further firm specific factors such as leverage, firm size, profitability, and growth opportunities and dividend per share significantly influence the credit ratings of firm. Similarly corporate governance factors such as board size, block holders, shareholder‟s rights and CEO duality also significantly related with firms‟ credit ratings. The analysis of this study might facilitate debt holders, investors, shareholders and other stake holders to understand the significance of credit ratings and its influence on performance and stock returns of firms. Supervisor: Dr. Attiya Yasmin Javid

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Keywords : Business Conditions, Corporate Governance Attributes, Credit Ratings, Financial Attributes, Ordered Probit Model, PACRA, Stock Returns
Supervisor: Attiya Yasmin Javid

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