We study the period following the 1997 Asian financial crisis to show that the credit rating downgrades affect corporate risk-taking behavior. We treat the crisis as an exogenous shock that led to improvements in the informativeness of Korea’s credit rating system, and we determine that firms that have experienced credit rating downgrades reduce their risk-taking following the crisis. However, we show that this impact is less pronounced for chaebol-affiliated firms. Furthermore, we present chaebol firms’ characteristics that mitigate the negative impact of credit rating downgrades on their risk-taking behavior– high net internal capital flow and large ownership concentration. (JEL G24, G32)