Seminar (Dept. of Accounting)

Title：The Determinants and Consequences of Financial Thresholds in Credit Ratings

Speaker：Allen Huang, Professor, Hong Kong University of Science and Technology

Time：14:30-16:00, Jun. 27th, 2025 (Friday)

Venue：Room 1008, Mingde Business Building

Language：Chinese & English

ABSTRACT:

This study examines the determinants and consequences of financial thresholds set by credit rating agencies (CRAs). We document three key findings. First, CRAs set tighter thresholds for rated firms that have poorer financial health, limited investment opportunities and greater uncertainties, and when CRAs face fewer conflicts of interest but more reputational concerns. Second, rated firms with tighter thresholds tend to experience greater improvements in financial ratios, likely due to a switch from debt to equity financing and increased growth and profitability. Third, threshold violations are associated with a greater likelihood of negative rating actions and threshold relaxation. Further analysis reveals that the market reacts more favorably to looser thresholds and negatively to threshold violations. Our study provides new evidence for the informational and monitoring roles of credit rating agencies in the public debt market. 

SHORT BIOGRAPHY:

Professor Allen Huang is a professor in the Accounting Department and the Associate Dean of the School of Business and Management of HKUST. He is also the Associate Director of the Center for Business and Social Analytics as well as a faculty associate in the HKUST Institute for Emerging Market Studies. He has published in Journal of Finance, Management Science, The Accounting Review, Journal of Accounting Research, Journal of Accounting and Economics, Journal of Financial and Quantitative Analysis, Review of Accounting Studies, and Contemporary Accounting Research. He is an editor at the Journal of Business, Finance and Accounting. Allen holds a Ph.D. in Business Administration from Duke University and a B.S. in Electronics from Peking University in China. Prior to joining HKUST, Allen worked in the Quantitative Equity Strategy group in Lehman Brothers and Barclays Capital in New York.