Publication Type
Journal Article
Version
acceptedVersion
Publication Date
1-2003
Abstract
We use revisions in analysts' earnings forecasts to examine how the bad news associated with a bond rating downgrade gets transferred from the downgraded company to its rivals. In general, we find that stock analysts revise their earnings expectations downward for rivals of companies with downgraded debt. However, the significance of the revision is limited to rivals of downgraded companies with non-investment grade debt only. For the rivals of companies with investment grade debt, we find no significant forecast revisions. We hypothesize that this differential impact is due to differing levels of market visibility. This is consistent with our finding that downgraded companies with non-investment grade debt are followed by significantly fewer stock analysts. Apparently not all rivals are affected equally by bond rating downgrades.
Keywords
bond-ratings, intra-industry effects
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Publication
Review of Quantitative Finance and Accounting
Volume
20
Issue
1
First Page
49
Last Page
62
ISSN
0924-865X
Identifier
10.1023/A:1022135605941
Publisher
Springer Verlag
Citation
CATON, Gary L. and GOH, Jeremy.
Are All Rivals Affected Equally by Bond Rating Downgrades?. (2003). Review of Quantitative Finance and Accounting. 20, (1), 49-62.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/2206
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1023/A:1022135605941