IDEAS home Printed from https://ideas.repec.org/a/kap/rqfnac/v20y2003i1p49-62.html
   My bibliography  Save this article

Are All Rivals Affected Equally by Bond Rating Downgrades?

Author

Listed:
  • Caton, Gary L
  • Goh, Jeremy

Abstract

We use revisions in analysts' earnings forecasts to examine how the bad news associated with a bond rating downgrade gets transferred from the downgraded company to its rivals. In general, we find that stock analysts revise their earnings expectations downward for rivals of companies with downgraded debt. However, the significance of the revision is limited to rivals of downgraded companies with non-investment grade debt only. For the rivals of companies with investment grade debt, we find no significant forecast revisions. We hypothesize that this differential impact is due to differing levels of market visibility. This is consistent with our finding that downgraded companies with non-investment grade debt are followed by significantly fewer stock analysts. Apparently not all rivals are affected equally by bond rating downgrades. Copyright 2003 by Kluwer Academic Publishers

Suggested Citation

  • Caton, Gary L & Goh, Jeremy, 2003. "Are All Rivals Affected Equally by Bond Rating Downgrades?," Review of Quantitative Finance and Accounting, Springer, vol. 20(1), pages 49-62, January.
    • Handle: RePEc:kap:rqfnac:v:20:y:2003:i:1:p:49-62
    as

    Download full text from publisher

    File URL: http://journals.kluweronline.com/issn/0924-865X/contents
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maxime Merli & Alain Schatt, 2007. "Are there contagion or competition effects for non rated firms?The case of successive bond rating downgrades of Alcatel," Working Papers CREGO 1070603, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
    2. María Concepción Verona Martel & José Juan Déniz Mayor, 2011. "Las agencias de rating y la crisis fi nanciera de 2008: ¿El fi n de un poder sin control?," Revista Criterio Libre, Universidad Libre - Sede Principal, June.
    3. Yuriy Zabolotnyuk, 2018. "Wealth Effects of Bond Rating Announcements," Multinational Finance Journal, Multinational Finance Journal, vol. 22(3-4), pages 211-254, September.
    4. Maxime Merli & Alain Schatt, 2003. "Contagion effects of successive bond rating downgrades," Working Papers of LaRGE Research Center 2003-02, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    5. Eliza Xia Zhang, 2020. "The impact of cash flow management versus accruals management on credit rating performance and usage," Review of Quantitative Finance and Accounting, Springer, vol. 54(4), pages 1163-1193, May.
    6. Martin Sullivan, 2009. "Credit Ratings and UK Defined Pension Fund Portfolio Values," Working Papers 0909, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    7. Hong-Yi Chen & Hsiao-Yin Chen, 2016. "Inconsistent Bond Pricing in a Rational Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(03), pages 1-17, September.
    8. Gonzalez, F. & Haas, F. & Johannes, R. & Persson, M. & Toledo, L. & Violi, R. & Zins, C. & Wieland, M., 2004. "Market dynamics associated with credit ratings: a literature review," Financial Stability Review, Banque de France, issue 4, pages 53-76, June.
    9. Hu, Haoshen & Kaspereit, Thomas & Prokop, Jörg, 2016. "The information content of issuer rating changes: Evidence for the G7 stock markets," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 99-108.
    10. Tsung-Kang Chen & Hsien-Hsing Liao & Hsiao-Chun Huang, 2014. "Macroeconomic risks of supply chain counterparties and corporate bond yield spreads," Review of Quantitative Finance and Accounting, Springer, vol. 43(3), pages 463-481, October.
    11. Abad, P. & Ferreras, R. & Robles, M.D., 2020. "Intra-industry transfer effects of credit risk news: Rated versus unrated rivals," The British Accounting Review, Elsevier, vol. 52(1).
    12. Ting-Kai Chou, 2013. "Information content of credit ratings in pricing of future earnings," Review of Quantitative Finance and Accounting, Springer, vol. 40(2), pages 217-250, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:rqfnac:v:20:y:2003:i:1:p:49-62. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.