The investigation of the effect of corporate governance on firm's credit ratings in the hospitality industry

Abstract

Investment in hospitality firms is perceived to be riskier than investments in other types of industries. Based on literature linking good corporate governance to lower default risks and higher credit ratings, this quantitative study is designed to identify the effects of corporate governance on credit ratings in the hospitality industry. After exploring the various factors influencing the characteristics of corporate governance, as well as the specific risks for capital financing in hospitality firms, this research provides empirical evidence to show that hospitality firms with stronger shareholder influence tend to have higher credit ratings. In a related finding, this investigation confirms that hospitality stakeholders are able to evaluate their potential risks by determining a firm's credit ratings and can protect their long-term interest by increasing their power versus management in the corporate governance of the firm.