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The informational content of unsolicited ratings

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  • Behr, Patrick
  • Güttler, André
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    Abstract

    This paper investigates whether the stock market reacts to unsolicited ratings for a sample of firms rated by S&P between January 1996 and December 2005. We first analyze the stock market reaction to the assignment of an initial unsolicited rating. We find evidence that this reaction is negative and particularly accentuated for small Japanese firms. We then analyze the stock market reaction to changes in unsolicited ratings for a Japanese sub-sample and find that here too the stock market reacts negatively. Our results imply that unsolicited ratings convey new information to the stock market and that investors react to this information. Although unsolicited ratings are based on publicly available information only, the stock market seems to be inefficient in processing this information for Japanese companies.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 32 (2008)
    Issue (Month): 4 (April)
    Pages: 587-599

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    Handle: RePEc:eee:jbfina:v:32:y:2008:i:4:p:587-599

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    Web page: http://www.elsevier.com/locate/jbf

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    References

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    5. Nickell, Pamela & Perraudin, William & Varotto, Simone, 2000. "Stability of rating transitions," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 203-227, January.
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    7. 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.
    8. Donald P. Morgan, 2002. "Rating Banks: Risk and Uncertainty in an Opaque Industry," American Economic Review, American Economic Association, vol. 92(4), pages 874-888, September.
    9. Holthausen, Robert W. & Leftwich, Richard W., 1986. "The effect of bond rating changes on common stock prices," Journal of Financial Economics, Elsevier, vol. 17(1), pages 57-89, September.
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    13. Li, Joanne & Shin, Yoon S. & Moore, William T., 2006. "Reactions of Japanese markets to changes in credit ratings by global and local agencies," Journal of Banking & Finance, Elsevier, vol. 30(3), pages 1007-1021, March.
    14. Richard Cantor & Frank Packer & Kevin Cole, 1997. "Split ratings and the pricing of credit risk," Research Paper 9711, Federal Reserve Bank of New York.
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    Cited by:
    1. Winnie P. H. Poon & Kam C. Chan, 2010. "Solicited and Unsolicited Credit Ratings: A Global Perspective," Working Papers id:3112, eSocialSciences.
    2. Byoun, Soku & Fulkerson, Jon A. & Han, Seung Hun & Shin, Yoon S., 2014. "Are unsolicited ratings biased? Evidence from long-run stock performance," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 326-338.
    3. Finnerty, John D. & Miller, Cameron D. & Chen, Ren-Raw, 2013. "The impact of credit rating announcements on credit default swap spreads," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 2011-2030.
    4. Winnie P. H. Poon & Kam C. Chan, 2010. "Solicited and Unsolicited Credit Ratings : A Global Perspective," Finance Working Papers 22815, East Asian Bureau of Economic Research.
    5. Dorn, Jochen, 2010. "Modeling of CPDOs - Identifying optimal and implied leverage," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1371-1382, June.
    6. May, Anthony D., 2010. "The impact of bond rating changes on corporate bond prices: New evidence from the over-the-counter market," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2822-2836, November.
    7. Stolper, Anno, 2009. "Regulation of credit rating agencies," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1266-1273, July.
    8. Hill, Paula & Brooks, Robert & Faff, Robert, 2010. "Variations in sovereign credit quality assessments across rating agencies," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1327-1343, June.
    9. Bannier, Christina E. & Hirsch, Christian W., 2010. "The economic function of credit rating agencies - What does the watchlist tell us?," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 3037-3049, December.
    10. Campbell, Cynthia J. & Cowan, Arnold R. & Salotti, Valentina, 2010. "Multi-country event-study methods," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 3078-3090, December.

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