The Information Content of Credit Ratings for Equity Investors

Abstract

This paper studies the question that credit rating changes of industrial companies have information content important to equity investors. The paper hypothesizes that both credit increases and credit decreases should yield statistically significant results. However, research shows that on the credit rating change announcement day, only companies being downgraded experience statistically significant movement in their stock price. The cumulative abnormal returns on stock prices for companies that were upgraded and for companies that were downgraded were statistically insignificant.