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Size does matter! The intra-industry effect of bank loan ratings

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  • Wei-Huei Hsu
  • Abdullah Mamun
  • Lawrence Rose

Abstract

We observe an intra-industry effect following a bank loan rating downgrade announcement, which differs for large and small competitors. A significant negative market reaction occurs between smaller competitors and rated firms, indicating the presence of a contagion effect; while significantly positive market reactions for larger competitors of rated firms indicate a competitive effect is present. We compare the size of rated firms with a corresponding competitor at firm level instead of aggregating at an industry level. This approach indicates an intra-industry effect is present, which differs depending on the relative size of competitors to the announcing firm. Our results confirm that rating agencies offer valuable information to the marketplace.

Suggested Citation

  • Wei-Huei Hsu & Abdullah Mamun & Lawrence Rose, 2010. "Size does matter! The intra-industry effect of bank loan ratings," Applied Financial Economics, Taylor & Francis Journals, vol. 20(23), pages 1807-1818.
  • Handle: RePEc:taf:apfiec:v:20:y:2010:i:23:p:1807-1818
    DOI: 10.1080/09603107.2010.526573
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