Danubius International Conferences, 22nd EMAN Conference. Social Responsibility and Sustainability Accounting-Key Corporate Performance Drivers and Measures

Do credit ratings take into account the sustainability performance of the companies?

Maite Cubas-Díaz, Miguel Ángel Martínez Sedano
Last modified: 2018-04-05


In the last decades sustainability performance measurement has become a more studied issue and there have been different measurement proposals, such as the Relative Sustainable Performance Measure and the Measure of Commitment-failure by Cubas-Díaz and Martínez Sedano (2018). However, it is also important to know if the proposed measures are really being used in the real world. In this paper, we take one very important indicator for investors when making investment decisions: the credit rating of the potential investment.

We want to test if credit ratings take into account the above-mentioned measures. In order to do it, we have obtained quantitative data about environmental and social variables from Datastream ASSET4 and data from financial reports from Datastream Worldscope for 1.056 companies during the period 2008-2014. We have also obtained their Stardard & Poor’s ratings from Bloomberg.

With those data, and following the existing literature, we conduct an ordered probit analysis using as controls the following variables, which are found in the literature about credit rating analysis: firm size, pretax interest coverage, ratios of operating income-to-sales and long-term debt-to-assets, capital intensity, standard deviation of the annual return, and loss, a categorical variable set to 1 if the company has had negative income before extraordinary items in the current and the previous year and 0 otherwise.

We find that companies with higher general measures of sustainability performance tend to have higher credit ratings and that the ones whose performance is less consistent over time tend to have lower ratings, being the results for the control variables coherent with the existing literature.

The analysis has been performed for different sectors and sub-periods of time. We have also conducted the analysis using different sustainability measures provided by ASSET4 (Datastream) as explanatory variables and using Fitch credit ratings as the explained variable.