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The Risk of Angels Falling

Malmberg, André LU and Johnson, Filippa LU (2026) BUSN79 20261
Department of Business Administration
Abstract
Seminar date: 2026-06-02
Course: BUSN79 - Degree Project in Accounting and Finance
Authors: Filippa Johnson & André Malmberg
Advisor / Examiner: Reda Moursli / Elias Bengtsson
Five keywords: Dividend Smoothing, Credit Rating, Fallen Angel, Investment-Grade, Speculative-Grade.
Purpose: The purpose of this paper is to investigate the relationship between dividend smoothing and credit ratings, more specifically to what extent the risk of being downgraded to speculative-grade affects dividend smoothing.
Methodology: Using a fixed effects panel regression, this study examines the impact of the distance of speculative grade on dividend smoothing. We measure smoothing behaviour by lagged dividends per share as well as an interaction with... (More)
Seminar date: 2026-06-02
Course: BUSN79 - Degree Project in Accounting and Finance
Authors: Filippa Johnson & André Malmberg
Advisor / Examiner: Reda Moursli / Elias Bengtsson
Five keywords: Dividend Smoothing, Credit Rating, Fallen Angel, Investment-Grade, Speculative-Grade.
Purpose: The purpose of this paper is to investigate the relationship between dividend smoothing and credit ratings, more specifically to what extent the risk of being downgraded to speculative-grade affects dividend smoothing.
Methodology: Using a fixed effects panel regression, this study examines the impact of the distance of speculative grade on dividend smoothing. We measure smoothing behaviour by lagged dividends per share as well as an interaction with distance to speculative-grade.
Theoretical perspectives: The theoretical foundation is grounded in dividend signaling theory, the pecking order theory, agency theory, and the credit rating-capital hypothesis. Furthermore, the study relies on theoretical concepts concerning the cliff effect and the regulatory value of credit ratings regarding the investment-grade boundary.
Empirical foundation: The empirical foundation consists of a comprehensive, cross-country panel dataset containing 1 359 public non-financial non-utility firms, holding an active S&P credit rating. The final unbalanced panel contains 10 315 firm-year observations spanning a ten-year period from 2015 to 2024.
Conclusions: The study finds strong evidence for traditional dividend smoothing in the sample. However, this behaviour is significantly reduced as firms approach the speculative-grade boundary, indicating that managers prioritize credit rating preservations over payout stability to avoid the severe costs of becoming a fallen angel. (Less)
Please use this url to cite or link to this publication:
author
Malmberg, André LU and Johnson, Filippa LU
supervisor
organization
course
BUSN79 20261
year
type
H1 - Master's Degree (One Year)
subject
keywords
Dividend Smoothing, Credit Rating, Fallen Angel, Investment-Grade, Speculative-Grade
language
English
id
9244599
date added to LUP
2026-07-01 12:47:37
date last changed
2026-07-01 12:47:37
@misc{9244599,
  abstract     = {{Seminar date: 2026-06-02
Course: BUSN79 - Degree Project in Accounting and Finance
Authors: Filippa Johnson & André Malmberg
Advisor / Examiner: Reda Moursli / Elias Bengtsson 
Five keywords: Dividend Smoothing, Credit Rating, Fallen Angel, Investment-Grade, Speculative-Grade.
Purpose: The purpose of this paper is to investigate the relationship between dividend smoothing and credit ratings, more specifically to what extent the risk of being downgraded to speculative-grade affects dividend smoothing.
Methodology: Using a fixed effects panel regression, this study examines the impact of the distance of speculative grade on dividend smoothing. We measure smoothing behaviour by lagged dividends per share as well as an interaction with distance to speculative-grade.
Theoretical perspectives: The theoretical foundation is grounded in dividend signaling theory, the pecking order theory, agency theory, and the credit rating-capital hypothesis. Furthermore, the study relies on theoretical concepts concerning the cliff effect and the regulatory value of credit ratings regarding the investment-grade boundary. 
Empirical foundation: The empirical foundation consists of a comprehensive, cross-country panel dataset containing 1 359 public non-financial non-utility firms, holding an active S&P credit rating. The final unbalanced panel contains 10 315 firm-year observations spanning a ten-year period from 2015 to 2024.
Conclusions: The study finds strong evidence for traditional dividend smoothing in the sample. However, this behaviour is significantly reduced as firms approach the speculative-grade boundary, indicating that managers prioritize credit rating preservations over payout stability to avoid the severe costs of becoming a fallen angel.}},
  author       = {{Malmberg, André and Johnson, Filippa}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{The Risk of Angels Falling}},
  year         = {{2026}},
}