The Effect of CEO Tenure on Corporate Bond Ratings

We examine the effect of CEO tenure on corporate bond credit ratings and investigate whether CEO tenure moderates the relationship between key determinants of credit ratings (profitability, accounting information quality, and information asymmetry) and credit ratings. We also explore whether foreign ownership, as a proxy for external governance, influences how CEO tenure affects credit ratings. Using a sample of 974 firm-year observations from KOSPI-listed firms between 2016 and 2021, we conduct empirical tests based on ordinal logistic regression and incorporate interaction terms to assess moderation effects. Our results indicate that CEO tenure has a statistically significant negative association with corporate bond credit ratings, suggesting that longer CEO tenure may be perceived as a risk factor by credit rating agencies. However, we find that CEO long tenure is a positive factor in that profitability, earnings quality, and governance are related to corporate bond ratings. And we find that CEO tenure mitigates the negative effect of information asymmetry on credit ratings, particularly in firms with higher information risk. This suggests that CEO tenure, when interacting with other variables, can be a positive factor for corporate bond credit ratings. Our findings imply that while CEO tenure is generally viewed unfavorably in credit evaluations, it can play a positive role in firms facing greater information asymmetry. Our findings contribute to the literature on managerial characteristics and credit risk assessment, and offers practical implications for corporate governance and bond market participants.