Date of Award


Degree Type


Degree Name

Master of Philosophy (MPHIL)


Finance and Insurance

First Advisor

Prof. Michael A. FIRTH

Second Advisor

Dr. Winnie Pui-han POON


This study investigates both the direct and indirect roles of credit ratings (CR) on the capital structures of 1,513 firms operating in 19 countries with different financial orientations and levels of economic development over the 20-year period (1991-2010).

Until recently, it has been common place to classify countries into capital market-based oriented (MB) and bank-based oriented (BB) in terms of their financial systems’ orientation (Antoniou et al. 2008). Traditionally, in MB economies (Australia, Canada, Hong Kong, South Korea, Mexico, the Netherlands, Sweden, Switzerland, Thailand, the U.K., and the U.S.) having a CR helps firms issue equity or bonds. In contrast, in BB economies (France, Germany, India, Indonesia, Italy, Japan, Russia, and Spain), companies tend to obtain loans from banks with which they maintain a long-term relationship. The creditworthiness of the firms is thus assessed by banks without much need for external CR.

I find that the CRs’ impact on a capital structure is more significant and negative in countries with more MB oriented financial systems when quantified by the Financial Architecture variable (measuring the size, activity and efficiency of a stock market vis–à–vis the banking system of country annually), but not by the traditional division into MB and BB countries. This is consistent with the pecking order theory and information role of CRs in issuing equity, as well as the evidence of a rapid development of stock markets in many BB countries, which dulls the distinction between the traditionally defined MB and BB economies. Furthermore, the relation between the CRs and firms’ leverage ratio is significantly stronger for companies operating in advanced countries than companies operating in developing economies. Moreover, my analysis shows that CRs play more significant role in the U.S. than in other countries.

In addition, I find that companies with poorer CRs display a faster speed of adjustment towards a desired level of gearing. This phenomenon takes place regardless of financial orientation or economic development of a country and can be linked with a different degree of financial constraints across differently rated firms.

Recommended Citation

Wojewodzki, M. (2013). The role of credit ratings on capital structure and its speed of adjustment in bank-oriented and market-oriented economies (Master's thesis, Lingnan University, Hong Kong). Retrieved from