Universal Journal of Accounting and Finance Vol. 9(5), pp. 995 - 1008
DOI: 10.13189/ujaf.2021.090510
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The Impact of International and National Credit Rating Level on Capital Structure Optimization: Evidence from Indonesia Non-Financial Listed Firms

Christina ^*, Mandra Lazuardi Kitri
School of Business and Management, Institut Teknologi Bandung, Bandung City, 40132, Indonesia

ABSTRACT

Credit rating is a measure of a firm's creditworthiness in financial markets. The cost and benefit given from credit rating is supposed to affect the capital structure decision in the following year. This research examines the effect of each rating level on the capital structure level and examines how credit ratings are substantial for the firms to reach the optimal capital structure. It will also compare the impact of credit ratings from different agencies. Quarterly data of 110 firms that fulfil the requirements are gathered from 2010 until 2021. Panel data analysis using the fixed effects method shows a nonlinear U-shape between Standard & Poor's and Fitch's credit rating on capital structure level and on the distance to optimal capital structure level. Low and high rated firms tend to have higher debt levels in the following year and have a larger distance to the optimal capital structure level. Meanwhile, mid rated firms have lower debt levels and smaller distances. However, the result is opposite using Moody's rating and insignificant using PEFINDO's rating. This research suggests that credit rating is important to the capital structure decisions and other Indonesia firms could acquire credit rating especially from international rating agency.

KEYWORDS
Credit Rating, Capital Structure, Optimal Capital Structure

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Christina , Mandra Lazuardi Kitri , "The Impact of International and National Credit Rating Level on Capital Structure Optimization: Evidence from Indonesia Non-Financial Listed Firms," Universal Journal of Accounting and Finance, Vol. 9, No. 5, pp. 995 - 1008, 2021. DOI: 10.13189/ujaf.2021.090510.

(b). APA Format:
Christina , Mandra Lazuardi Kitri (2021). The Impact of International and National Credit Rating Level on Capital Structure Optimization: Evidence from Indonesia Non-Financial Listed Firms. Universal Journal of Accounting and Finance, 9(5), 995 - 1008. DOI: 10.13189/ujaf.2021.090510.