Title

Are All Rivals Affected Equally by Bond Rating Downgrades?

Publication Type

Journal Article

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

Additional URL

http://dx.doi.org/10.1023/A:1022135605941