Publication Type

Journal Article

Version

publishedVersion

Publication Date

6-2014

Abstract

This study examines the informational role of credit watch placement in the overall bond rating process from 1992 to 2006. The paper uses standard event study to examine the market reaction of the whole process of credit rating change which includes credit watch placement, transitional period, and actual rating change. The authors find that the act of a company’s bond being put on both positive and negative credit watch placements are associated with significant abnormal returns in the company’s stock while negative credit watch placement helps reduce the negative market reaction on the actual rating downgrade. The paper shows that bond rating revisions associated with initial inclusion on credit watch placement are more informative than rating changes that occur without initial inclusion on a credit watchlist. Finally, the authors examine the credit rating impact under different level of analyst coverage. The authors conclude that low analyst coverage firms which contain low information in the market consistently have larger market impacts than high analyst coverage firms.

Keywords

credit rating agency, credit watch placement, bond rating, abnormal returns

Discipline

Finance and Financial Management

Research Areas

Finance

Publication

Investment Management and Financial Innovations

Volume

11

Issue

1

First Page

18

Last Page

28

ISSN

1810-4967

Publisher

Business Perspectives

Copyright Owner and License

Authors

Additional URL

http://businessperspectives.org/journals_free/imfi/2014/imfi_en_2014_01_Chiyachantana.pdf

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