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The Long-Run Stock Returns Following Bond Ratings Changes

The Journal of finance (New York), 2001-02, Vol.56 (1), p.173-203 [Peer Reviewed Journal]

Copyright 2001 American Finance Association ;2001 the American Finance Association ;Copyright Blackwell Publishers Inc. Feb 2001 ;ISSN: 0022-1082 ;EISSN: 1540-6261 ;DOI: 10.1111/0022-1082.00322 ;CODEN: JLFIAN

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  • Title:
    The Long-Run Stock Returns Following Bond Ratings Changes
  • Author: Dichev, Ilia D. ; Piotroski, Joseph D.
  • Subjects: Bond rating ; Bond ratings ; Book value ; Credit ratings ; Data sampling ; Debt ; Investment credit ; Investors ; Rates of return ; Regression coefficients ; Standard and Poors 500 Index ; Statistical analysis ; Stock prices ; Studies
  • Is Part Of: The Journal of finance (New York), 2001-02, Vol.56 (1), p.173-203
  • Description: Using essentially all Moody's bond ratings changes between 1970 and 1997, we find no reliable abnormal returns following upgrades. However, we find negative abnormal returns on the magnitude of 10 to 14 percent in the first year following downgrades. Additional results reveal that this underperformance is especially pronounced for small, low-credit-quality firms. Also, downgrades underperform in nearly all years in the sample, and a large part of the abnormal returns occur at subsequent earnings announcements. Thus, the evidence suggests that the poor returns result from an underreaction to the announcement of downgrades, rather than from lower systematic risk.
  • Publisher: Boston, USA and Oxford, UK: Blackwell Publishers, Inc
  • Language: English
  • Identifier: ISSN: 0022-1082
    EISSN: 1540-6261
    DOI: 10.1111/0022-1082.00322
    CODEN: JLFIAN
  • Source: Alma/SFX Local Collection
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