Do Announcements of Corporate Bond Rating Revisions Matter?

31 Pages Posted: 31 Aug 2009 Last revised: 25 Nov 2009

See all articles by Hasniza Mohd Taib

Hasniza Mohd Taib

RMIT University - School of Economics, Finance and Marketing

Emawtee Bissoondoyal-Bheenick

Monash University; Financial Research Network (FIRN)

Terrence A. Hallahan

Victoria University

Amalia Di Iorio

La Trobe Business School

Date Written: August 24, 2009

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

Suggested Citation

Mohd Taib, Hasniza and Bissoondoyal-Bheenick, Emawtee and Hallahan, Terrence A. and Di Iorio, Amalia, Do Announcements of Corporate Bond Rating Revisions Matter? (August 24, 2009). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1463268 or http://dx.doi.org/10.2139/ssrn.1463268

Hasniza Mohd Taib (Contact Author)

RMIT University - School of Economics, Finance and Marketing ( email )

Business
Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia
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Emawtee Bissoondoyal-Bheenick

Monash University ( email )

Building H, Level 3
900 Dandenong Road
Caulfield, Victoria 3 145
Australia
+61399032957 (Phone)
+61399032422 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia 4071 Brisbane
Queensland
Australia

HOME PAGE: www.firn.org.au

Terrence A. Hallahan

Victoria University ( email )

School of Accounting and Finance
300 Flinders Street
Melbourne, 8001
Australia

Amalia Di Iorio

La Trobe Business School ( email )

Department of Economics and Finance
Victoria 3552, 3086
Australia

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