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Wealth Effects of Bond Rating Announcements

Multinational Finance Journal, 2018, vol. 22, no. 3/4, pp. 211-254

Abstract:
This paper employs meta-analysis methodology to reconcile the diverse international empirical evidence on the effects of bond rating announcements on the stock prices of the issuing firms. The random-effects model meta-analysis of 53 published studies and 421 sub-samples of data covering a range of countries and 44,713 bond rating announcements reveals an average cumulative abnormal stock return of -1.64% associated with the bond downgrades and an average cumulative abnormal stock return of 0.28% associated with the bond upgrades. Factors such as initial bond rating, issuer location, announcement period, and rating change size have significant effects on the size of the abnormal stock returns around the rating announcement dates.

Keywords : bond rating announcements; wealth effects; meta-analysis; information asymmetry
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