We find that as firm’s rating levels improve, managers tend to increase capial expenditure but this effect is reduced or changed negative within near BBB. These results do not depend on financial constraints, but rather because managers are concerned about a credit rating downgrade. Furthermore their underinvesetment affect the quality of their investment. In mergers and acquisitons case, the bidder at or near BBB grade have greater cumulative average returns. Therefore, we conclude that managers display different behavior depending on their current credit rating and that this can affect the quantity and quality of their investments.​

Keywords: credit rating, Manage for credit ratings, underinvestment, capital expenditure, mergers and acquisitions
JEL classification: G32, G34​