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Big is beautiful: the information content of bank rating changes


  • Christian Fieberg
  • Finn Marten Körner
  • Jörg Prokop
  • Armin Varmaz


Purpose - – The purpose of this paper is to study the information content of about 3,300 global bank rating changes before and after the Lehman bankruptcy in September 2008 to assess if differences in stock market reactions for small and big banks emerge. Design/methodology/approach - – The analysis of the stock market reactions of rating changes (upgrades and downgrades) and bank’s size (small and big) is conducted by an event study approach. Findings - – The authors find that while upgrades are not associated with significant abnormal bank stock returns, downgrades have a significantly negative effect. This result holds for both small and big banks, while negative abnormal returns are considerably stronger for the former. For small banks, the authors observe an increase in negative cumulative abnormal returns post-Lehman. The lack of a reaction to large banks’ rating downgrades in the narrow [-1,+1] event window indicates that their stock prices may, to some extent, be insulated from negative rating information even post-Lehman, which the authors attribute to an implicit “too big to fail” subsidy anticipated by equity investors. Originality/value - – This paper provides insights to the differences in the information content of changes in small and big banks’ credit rating on stock returns that is unrelated to the well-known size effect. Compared to small banks, big banks seem to some extent be insulated from negative rating changes even post-Lehman – contributing to the on-going too big to fail debate.

Suggested Citation

  • Christian Fieberg & Finn Marten Körner & Jörg Prokop & Armin Varmaz, 2015. "Big is beautiful: the information content of bank rating changes," Journal of Risk Finance, Emerald Group Publishing, vol. 16(3), pages 233-252, May.
  • Handle: RePEc:eme:jrfpps:v:16:y:2015:i:3:p:233-252

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    Event study; Credit rating; Lehman bankruptcy; SIFI; Too big to fail; G14; G15; N2;

    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
    • N2 - Economic History - - Financial Markets and Institutions


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