Publication Type
Journal Article
Version
publishedVersion
Publication Date
12-1993
Abstract
We examine the reaction of common stock returns to bond rating changes. While recent studies find a significant negative stock response to downgrades, we argue that this reaction should not be expected for all downgrades because: (1) some rating changes are anticipated by market participants and (2) downgrades because of an anticipated move to transfer wealth from bondholders to stockholders should be good news for stockholders. We find that downgrades associated with deteriorating financial prospects convey new negative information to the capital market, but that downgrades due to changes in firms' leverage do not.
Keywords
Bond ratings, expected returns, stock prices
Discipline
Business | Corporate Finance | Finance and Financial Management
Research Areas
Finance
Publication
Journal of Finance
Volume
48
Issue
5
First Page
2001
Last Page
2008
ISSN
1540-6261
Identifier
10.1111/j.1540-6261.1993.tb05139.x
Publisher
Wiley
Citation
GOH, Choo Yong, Jeremy and Ederington, Louis H..
Is a Bond Rating Downgrade Bad News, Good News, or No News for Stockholders?. (1993). Journal of Finance. 48, (5), 2001-2008.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/2199
Copyright Owner and License
Publisher
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/10.1111/j.1540-6261.1993.tb05139.x