Is a Bond Rating Downgrade Bad News, Good News, or No News for Stockholders?

• Main Authors: GOH, Choo Yong, Jeremy, Ederington, Louis H.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 1993
• Subjects: Bond ratings; expected returns; stock prices; Business; Corporate Finance; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/2199; https://ink.library.smu.edu.sg/context/lkcsb_research/article/3198/viewcontent/Bond_Rating_1993_pv.pdf
• Institution: Singapore Management University

We examine the reaction of common stock returns to bond rating changes. While recent studies find a significant negative stock response to downgrades, we argue that this reaction should not be expected for all downgrades because: (1) some rating changes are anticipated by market participants and (2)...