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The Independent Impact of Credit Rating Changes – The Case of Moody's Rating Refinement on Yield Premiums

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  • Pu Liu
  • Fazal J. Seyyed
  • Stanley D. Smith

Abstract

On April 26, 1982, Moody’s Investors Service refined its rating system for the first time in its seventy‐three year rating history. We examine the information content of the rating refinement in the study. We find a statistically significant change in the yields on bonds whose ratings were downgraded. The detection of the impact of refinement on bond prices implies that rating agencies perform an important function in financial markets, that is they provide information to investors.

Suggested Citation

  • Pu Liu & Fazal J. Seyyed & Stanley D. Smith, 1999. "The Independent Impact of Credit Rating Changes – The Case of Moody's Rating Refinement on Yield Premiums," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(3‐4), pages 337-363, April.
    • Handle: RePEc:bla:jbfnac:v:26:y:1999:i:3-4:p:337-363
    DOI: 10.1111/1468-5957.00259
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    Cited by:

    1. Winnie P. H. Poon & Michael Firth, 2005. "Are Unsolicited Credit Ratings Lower? International Evidence From Bank Ratings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9‐10), pages 1741-1771, November.
    2. Leo Tang & Marietta Peytcheva & Pei Li, 2020. "Investor-Paid Ratings and Conflicts of Interest," Journal of Business Ethics, Springer, vol. 163(2), pages 365-378, May.
    3. Florou, Annita & Kosi, Urska & Pope, Peter F., 2017. "Are international accounting standards more credit relevant than domestic standards?," LSE Research Online Documents on Economics 68202, London School of Economics and Political Science, LSE Library.
    4. Pandej Chintrakarn & Sirimon Treepongkaruna & Pornsit Jiraporn & Sang Mook Lee, 2020. "Do LGBT-Supportive Corporate Policies Improve Credit Ratings? An Instrumental-Variable Analysis," Journal of Business Ethics, Springer, vol. 162(1), pages 31-45, February.
    5. Bissoondoyal-Bheenick, Emawtee, 2005. "An analysis of the determinants of sovereign ratings," Global Finance Journal, Elsevier, vol. 15(3), pages 251-280, February.
    6. Giovanni Ferri & Andrea Morone, 2014. "The effect of rating agencies on herd behaviour," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 9(1), pages 107-127, April.

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