What Drives the Consequences of Intentional Misstatements? Evidence from Rating Analysts’ Reactions

By analyzing the content of #rating #reports, the study identifies seven different mechanisms that rating analysts are concerned about, with the most significant being the #misstatement-related violations of #debt covenants that increase #liquidityrisk and #compliancerisk. The study finds that #creditratings and #reputationalrisk of #misreporting firms are adversely affected for up to seven years after an intentional misstatement becomes publicly known. The impact of an intentional misstatement on a firm’s credit rating is most pronounced when rating analysts express concerns about covenant violations.