Information Content of Credit Rating Affirmations
40 Pages Posted: 31 Mar 2020
Date Written: March 3, 2020
We study whether credit rating affirmations affect stock investors. In a sample of U.S. corporate credit ratings over the period 1995-2018, we find that information uncertainty proxied by analyst forecast dispersion and stock return volatility decreases within a 30-day window following the rating affirmation announcements. The reduction in information uncertainty is mainly driven by non-investment grade bond issuers, whereas such reduction is not statistically significant for investment-grade bond issuers. We also find that the stock market reaction to rating affirmations for the non-investment issuers is significantly positive. Our findings uncover a previously unexplored benefit of rating affirmations to stock market participants.
Keywords: credit rating affirmations; information content
JEL Classification: G14; G20; G24
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