Rating changes and the impact on stock prices

Baraccat, Bruno Borges; Bortoluzzo, Adriana Bruscato; Gonçalves, Adalto Barbaceia

doi:10.7819/rbgn.v22i0.4064

Cited by 3 publications

(4 citation statements)

References 26 publications

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“…Still, there was no significant difference in the average abnormal return before and after the announcement of the Investment Grade. The study by Baraccat et al [ 32 ] also showed no significant difference in stock returns when there was an increase in credit rating on the Brazilian stock exchange.…”

Section: Analysis and Discussionmentioning

confidence: 99%

“…There was no significant difference in the average abnormal returns before and after the Investment Grade announcement. Another study that made an important contribution to the theory of market efficiency, conducted by Baraccat et al [ 32 ] aimed at analyzing the impact of changes in credit ratings on the long-term returns of Brazilian companies, by conducting an event study to measure how stock prices on the Brazilian Stock Exchange reacted with the appearance of upgrades and downgrades by Moody's and S&P. The results of the study show that stock returns are positive and significant when there is a downgrade and not significant when there is an increase in credit rating.…”

Section: Literature Reviewmentioning

confidence: 99%

See 1 more Smart Citation

Stock market reaction to government policy on determining coal selling price

Sunardi¹,

Noviolla²,

Supramono³

et al. 2023

Heliyon

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Section: Analysis and Discussionmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Stock market reaction to government policy on determining coal selling price

Sunardi¹,

Noviolla²,

Supramono³

et al. 2023

Heliyon

View full text Add to dashboard Cite

“…Indeed, the greatest informative effect was produced by rating downgrades. In fact, Pinto [28] found a statistically significant abnormal return only in the case of a rating downgrade. A study of the influence of credit ratings on the stock prices of companies on the Johannesburg Stock Exchange (RSA) in 2005-2015 [29] showed that, just as in mature economies, this market shows a significantly negative response only to rating downgrades.…”

Section: Literature Reviewmentioning

confidence: 96%

Testing Russian Stock Market Efficiency Using Event Studies: Impact of Credit Ratings Changes

Avrutskaya

Maricheva²

2021

КФ

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Event study is a widespread technique for testing the semi-strong form of the market efficiency hypothesis. Among traditionally studied events, changes in corporate credit ratings by rating agencies have a special importance, since rating agencies use both publicly available and insider information. Studies of developed and emerging markets point to different reactions of stock prices to rating upgrades and downgrades and identify several factors affecting the scale of this effect, including the size and liquidity of the stock market, the level of regulation of the industry, the market capitalization of the company, the status of the rating agency, and others. On the Russian market, the impact of credit rating upgrades and downgrades on stock prices has not been investigated so far. Ongoing studies of other events affecting stock prices show that the market’s reactions are pretty much in line with those of developed markets, despite its immaturity, limited transparency, high volatility, narrowness and low liquidity, as well as the small number of significant events. In this article, we evaluate the level of efficiency of the Russian stock market and analyse the reaction of stock prices to changes in issuer credit ratings by international rating agencies using the traditional event study methodology in a narrow event window of 31 days over the period 2016–2020 on a sample of 49 public companies. We show that credit rating upgrades do not lead to statistically significant positive abnormal returns. Visual analysis demonstrates that rating downgrades result in substantial negative abnormal returns. This effect varies for financial and non-financial companies and companies with low and high capitalization yet differs from the effects observed for developed markets; nevertheless, these abnormal returns are not statistically significant. Still, there are grounds to conclude that the Russian stock market is not efficient in the semi-strong form and is closer in its characteristics to emerging markets, which is important information for investors, as it permits them to develop profitable trading strategies.

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“…For certain companies, covering needs with medium-and long-term debt, regardless of the nature of the debt, will put the company in a position of insolvency in the eyes of bondholders, causing its value to fluctuate according to the level of debt chosen, or even according to its exposure to the risk of bankruptcy (Amira & Hafssa, 2021). Debt is also a multidimensional signal, it is the result of a need for financing in the face of expansion potential (Ding et al, 2020), but it can also be seen by others as an indication of financial difficulties (Amira & Hafssa, 2021;Baraccat et al, 2020;Gallagher et al, 2022). We use total debt/total equity: Debt/Eq < 2 and current ratio: CR > 1.…”

Section: Financial Performance Signals Used To Differentiate High Bm ...mentioning

confidence: 99%