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Credit rating downgrades and stock price crash risk: International evidence

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  • Nguyen, Thu Ha
  • Lan, Yihui
  • Treepongkaruna, Sirimon
  • Zhong, Rui

Abstract

We document a significant decline in the likelihood of firm-specific stock price crashes after the announcement of credit rating downgrades in 69 countries. This finding supports the argument that credit rating agencies (CRAs) contribute to the disseminating of negative information in the equity market by issuing rating downgrades. Our results remain robust after various tests for endogeneity. Further analysis shows that the negative relationship between rating downgrades and stock price crashes is amplified by information opacity. These findings shed light on the role of CRAs in promoting the flow of negative information into the equity market and enhancing its stability.

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  • Nguyen, Thu Ha & Lan, Yihui & Treepongkaruna, Sirimon & Zhong, Rui, 2023. "Credit rating downgrades and stock price crash risk: International evidence," Finance Research Letters, Elsevier, vol. 55(PB).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003616
    DOI: 10.1016/j.frl.2023.103989
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    1. Das, Kuntal K. & Yaghoubi, Mona, 2024. "Migration fear and stock price crash risk," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).

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    More about this item

    Keywords

    Credit rating downgrades; Stock price crash risk; Negative Information Hoarding; Information opacity;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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