Although not adequately addressed in recent research, the impact of international rating agencies handling political risk in Iberian private enterprises is a critical element for corporate capital structure and leverage decisions. The financial crisis of the new century, combined with international rating agencies' downgrading of Portugal, increased concerns about the influence of political risk on company financing and how changes in political risk can affect managers' perceptions of the capital structure of their companies. From 2003 to 2015, the time span was chosen to include recent and large financial crises that had an impact on the country's political risk change. The results were determined through an empirical research using a novel econometric model, starting with correlations between Leverage and variables Return on Assets, Return on Equity, Dimension, Tangibility, Sales Variation, Political Risk, and Critical Political Risk. Critical Political Risk is a dummy variable according to the Credit Rating Agencies' notations. We look at how this notation affects domestic political risk as well as the capital structure of businesses, taking into account the impact of this international notation. Evidence supported our hypothesis: as political risk increased, leverage decreased. Determining how CPR affects each firm, evaluating risk per company, and analysing the impact of Rating Notation on financing decisions in private enterprises from the Iberian Market are among the other research topics.
Author (S) Details
Vasco Soares
Instituto Superior do Vouga, Santa Maria da Feira, Porto, Portugal.
Sónia Carvalho
Instituto Politécnico de Viana do Castelo, Valença, Portugal.
Mafalda Mendes-Ribeiro
Departamento de Economia e Gestão, Universidade Portucalense, Porto, Portugal.
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