IDEAS home Printed from https://ideas.repec.org/a/eme/jrfpps/v16y2015i3p233-252.html
   My bibliography  Save this article

Big is beautiful: the information content of bank rating changes

Author

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

Abstract

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
    as

    Download full text from publisher

    File URL: http://www.emeraldinsight.com/10.1108/JRF-10-2014-0156?utm_campaign=RePEc&WT.mc_id=RePEc
    Download Restriction: Access to full text is restricted to subscribers

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

    Other versions of this item:

    More about this item

    Keywords

    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

    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:eme:jrfpps:v:16:y:2015:i:3:p:233-252. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman). General contact details of provider: http://www.emeraldinsight.com .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.