Are All Rivals Affected Equally by Bond Rating Downgrades?

We use revisions in analysts' earnings forecasts to examine how the bad news associated with a bond rating downgrade gets transferred from the downgraded company to its rivals. In general, we find that stock analysts revise their earnings expectations downward for rivals of companies with downg...

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Main Authors: CATON, Gary L., GOH, Jeremy
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2003
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/2206
https://ink.library.smu.edu.sg/context/lkcsb_research/article/3205/viewcontent/AreAllRivalsAffectedEqually_Caton_Goh_2003_av.pdf
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spelling sg-smu-ink.lkcsb_research-32052021-04-15T04:47:22Z Are All Rivals Affected Equally by Bond Rating Downgrades? CATON, Gary L. GOH, Jeremy We use revisions in analysts' earnings forecasts to examine how the bad news associated with a bond rating downgrade gets transferred from the downgraded company to its rivals. In general, we find that stock analysts revise their earnings expectations downward for rivals of companies with downgraded debt. However, the significance of the revision is limited to rivals of downgraded companies with non-investment grade debt only. For the rivals of companies with investment grade debt, we find no significant forecast revisions. We hypothesize that this differential impact is due to differing levels of market visibility. This is consistent with our finding that downgraded companies with non-investment grade debt are followed by significantly fewer stock analysts. Apparently not all rivals are affected equally by bond rating downgrades. 2003-01-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/2206 info:doi/10.1023/A:1022135605941 https://ink.library.smu.edu.sg/context/lkcsb_research/article/3205/viewcontent/AreAllRivalsAffectedEqually_Caton_Goh_2003_av.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University bond-ratings intra-industry effects Finance and Financial Management Portfolio and Security Analysis
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic bond-ratings
intra-industry effects
Finance and Financial Management
Portfolio and Security Analysis
spellingShingle bond-ratings
intra-industry effects
Finance and Financial Management
Portfolio and Security Analysis
CATON, Gary L.
GOH, Jeremy
Are All Rivals Affected Equally by Bond Rating Downgrades?
description We use revisions in analysts' earnings forecasts to examine how the bad news associated with a bond rating downgrade gets transferred from the downgraded company to its rivals. In general, we find that stock analysts revise their earnings expectations downward for rivals of companies with downgraded debt. However, the significance of the revision is limited to rivals of downgraded companies with non-investment grade debt only. For the rivals of companies with investment grade debt, we find no significant forecast revisions. We hypothesize that this differential impact is due to differing levels of market visibility. This is consistent with our finding that downgraded companies with non-investment grade debt are followed by significantly fewer stock analysts. Apparently not all rivals are affected equally by bond rating downgrades.
format text
author CATON, Gary L.
GOH, Jeremy
author_facet CATON, Gary L.
GOH, Jeremy
author_sort CATON, Gary L.
title Are All Rivals Affected Equally by Bond Rating Downgrades?
title_short Are All Rivals Affected Equally by Bond Rating Downgrades?
title_full Are All Rivals Affected Equally by Bond Rating Downgrades?
title_fullStr Are All Rivals Affected Equally by Bond Rating Downgrades?
title_full_unstemmed Are All Rivals Affected Equally by Bond Rating Downgrades?
title_sort are all rivals affected equally by bond rating downgrades?
publisher Institutional Knowledge at Singapore Management University
publishDate 2003
url https://ink.library.smu.edu.sg/lkcsb_research/2206
https://ink.library.smu.edu.sg/context/lkcsb_research/article/3205/viewcontent/AreAllRivalsAffectedEqually_Caton_Goh_2003_av.pdf
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