Determination of factors influencing companies to obtain credit rating in Kenya
Mbuki, Jane N
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Credit rating systems help to build an effective financial system by promoting transparency in lending. They are effective tools towards mitigation of adverse selection and moral hazard in credit market, and have been ground to lower overall default and interest rate and improve the pool of borrowers in formal credit markets. For companies who are unwilling to tap the capital market for funds, ratings could differentiate them among their joint venture partners, suppliers and competitors which will help them obtain a better market standings and credit facilities. This study was therefore designed to identify factors encouraging companies to obtain credit ratings and factors hindering listed companies from obtaining credit ratings. Listed companies were selected for this study because only 4 out of the 52 companies listed in NSE have obtained credit rating and the CMA is-considering the option of mandatory rating for all issuers of security in the capital market. The study established that, the most important factors encouraging companies to obtain credit rating in Kenya are: - as a requirement by major trading partners and for the purpose of marketing the company to the customers. The common factor hindering companies from obtaining credit rating is fear of downgrades. The study establishes that the most challenging factors companies face when seeking credit rating is lack of two or more local credit rating agencies. The study recommends that in order to promote development of credit rating systems -. in Kenya regulators should play a supportive and facilitative role, an appropriate regulatory framework to be put in place, review of the guideline issued for requirement for approval of credit rating agency and creation of awareness to the government, investors and borrowers.