Do Announcements of Corporate Bond Rating Revisions Matter?

Abstract

This paper examines the stock market impact of announcements of corporate bond rating revisions for companies in the United Kingdom (UK) and in Australia. Investigating the market reaction to bond rating changes by Moody’s and Standard & Poor’s, our findings reveal similar results for downgrade announcements but not upgrade announcements. Using daily data from 1997 to 2006 we find a significant announcement affect to downgrades both in the UK and Australia markets. In contrast, evidence of stock price reaction during upgrade announcements is weak. Subperiod analysis supports these results. Finally, an investigation of the market reaction to a rating change for different bond grades reveals similar results for the UK and Australia in the case of downgrade announcements only.

Keywords: Corporate Bond, Rating Agency, Event Study

JEL Classification: G12, G14