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Tytuł pozycji:

Informational role of rating revisions after reputational events and regulation reforms.

Tytuł:
Informational role of rating revisions after reputational events and regulation reforms.
Autorzy:
Abad, Pilar
Ferreras, Rodrigo
Robles, M-Dolores
Temat:
GOODWILL (Commerce)
CREDIT ratings
ECONOMIC shock
ECONOMIC reform
INVESTORS
STOCK prices
Źródło:
International Review of Financial Analysis. Mar2019, Vol. 62, p91-103. 13p.
Czasopismo naukowe
Abstract This paper analyzes how reputational shocks and regulatory reforms have affected the value-relevant information content of rating adjustments announced by the main Credit Rating Agencies (CRAs). We analyze the U.S. stock market at the firm level. Our novel empirical findings show the inverse relation between rating revisions and the stock price synchronicity, indicating additional information impounded in prices after rating changes. We find that investors consider downgrades more valuable after the Enron, WorldCom and Lehman Brothers defaults. Investors interpret reputational distress as a disciplinary event that prompts agencies to improve the rating process to recover their reputation. Agencies efforts seem to be greater for worse-rated issues. Our analysis of rating-related regulation indicates that the changes in regulation did not always increase the value-relevant information in rating. We find less informative rating changes after the passage of rules that increase the reliance on ratings or enhance the competition among agencies. Conversely, when the objective is to reduce the regulatory reliance, CRAs react by issuing more informative ratings, thus increasing their utility for market participants. Highlights • Reputational shocks and regulatory reforms affect the value-relevant information disclosed by rating adjustments. • There is an inverse relation between rating revisions and the stock price synchronicity: they disclose value-relevant information. • Investors consider reputational distress as a disciplinary event that prompts agencies to improve the rating process to recover reputation. • Regulations that increase the reliance on ratings or enhance the competition among agencies decrease the informative content of rating. • CRAs react to rules that lower the reliance on ratings by issuing more informative ratings. [ABSTRACT FROM AUTHOR]
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