Corporate integrity culture and credit rating assessment

Recent research has started to acknowledge the vital role of soft information in shaping credit rating outcomes. We extend this literature by investigating the effect of corporate integrity culture on the credit rating process and document a significant positive relationship between a culture of integrity and corporate credit ratings. We further show that this relationship is from both an indirect effect of integrity on a reduced financial risk, and a direct effect of integrity in signalling the creditworthiness of the underlying firm. When an alternative signalling device, such as firm reputation, earnings management activity, and Carbon Disclosure Project involvement, contradicts with integrity culture, integrity is no longer a significant predictor of credit ratings. Our results suggest that corporate culture plays an important role in the credit rating assessment process.