Positive Externalities of Credit Ratings: Customer Downgrades, Supplier Performance, and Investor Perception

This study examines how a change in information about a customer's creditworthiness affects responses to a supplier's financial information, focusing on earnings response coefficients (ERCs). We use a major customer's credit rating downgrade (CCRD) as a change to the information environment. We find that suppliers' ERCs are weaker following a CCRD, consistent with reduced persistence and growth opportunities. We find evidence supporting investors' reactions: after the downgrade, suppliers are more likely to experience a deterioration in customer relationships, reduced operational efficiency and investment and fewer growth opportunities. These findings highlight a positive externality of credit ratings that are created for debt holders, but are also useful to other stakeholders.

• Publication year

  2025

• Venue

  Accounting & Finance

• Publication date

  2025-10-09

• Fields of study

  Not labeled

• Identifiers
  DOI 10.1111/acfi.70122
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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