The Influence of Corporate Governance Practices and Ownership Structure on Credit Ratings: Evidence from Indonesia

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Cynthia Afriani Utama
Sidharta Utama
Ahmad M. Amin


Manuscript type: Research paper
Research aims: This study aims to investigate the influence of
corporate governance practices and ownership structure on the
credit ratings of listed firms in Indonesia.
Design / Methodology / Approach: This study empirically employs
the ordered logit model and a corporate governance measure that
is based on OECD corporate governance principles.
Research findings: This study finds that corporate governance
practices reduce agency problems between creditors and
shareholders. This is reflected by their positive impact on firm credit
ratings. The results of the tests further show that credit ratings are
affected positively by share ownership held by blockholders. Thus,
higher concentrated ownership provides oversight functions which
could lead to higher debt ratings. However, when blockholders are
from families, the possibility of expropriation increases and this, in
turn, reduces debt ratings.
Theoretical contributions / Originality: This study examines the
effect of a comprehensive measure of corporate governance practices
and families as blockholders on firms’ credit ratings.
Practitioner / Policy implications: Firms need to improve their
corporate governance practices in order to facilitate the issuance
of long term debt at lower yield.
Research limitations / Implications: This study has limited
observations that may affect the power of statistical test. Future studies should increase sample size, extend the period of the study
and employ more recent data.
Keywords: Corporate Credit Ratings, Corporate Governance
Practice, Firm Default Risk, Ownership Structure
JEL classification: G30, G34


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