In culture we trust: Corporate culture and credit risk assessment

We examine whether credit rating agencies consider corporate culture as a credit risk factor when assessing a firm's overall creditworthiness. We find that a strong corporate culture is associated with better credit ratings. We identify two channels for the process of translating corporate culture into higher credit ratings: firms with a strong corporate culture are associated with lower information risk and higher productivity. The effect of culture on credit risk assessments is more pronounced among financially constrained firms, firms that operate in a highly competitive environment, and firms facing greater agency problems. Overall, our findings illustrate how workplace norms influence credit ratings and highlight the role of value-relevant information in risk assessment decisions.