Business Fin Account - 2023 - Nguyen - Asymmetric trading responses to credit rating announcements from issuer%E2%80%90 versus.pdf (304.67 kB)
Asymmetric trading responses to credit rating announcements from issuer- versus investor-paid rating agencies
journal contribution
posted on 2023-06-15, 15:45 authored by Quan Pham Minh NguyenQuan Pham Minh Nguyen, HX Do, A Molchanov, L Nguyen, NH NguyenThe credit rating industry has traditionally followed the “issuer-pays” principle. Issuer-paid credit rating agencies (CRAs) have faced criticism regarding their untimely release of negative rating adjustments, which is attributed to a conflict of interests in their business model. An alternative model based on the “investor-pays” principle is arguably less subject to the conflict of interest problem. We examine how investors respond to changes in credit ratings issued by these two types of CRAs. We find that investors react asymmetrically: They abnormally sell equity stakes around rating downgrades by investor-paid CRAs, while abnormally buying around rating upgrades by issuer-paid CRAs. Our study suggests that, through their trades, investors capitalize on value-relevant information provided by both types of CRAs, and a dynamic trading strategy taking advantage of this information generates significant abnormal returns.
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- Published
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- Published version
Journal
Journal of Business Finance and AccountingISSN
0306-686XPublisher
WileyExternal DOI
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- Accounting and Finance Publications
Full text available
- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2023-04-12First Open Access (FOA) Date
2023-04-12First Compliant Deposit (FCD) Date
2023-04-04Usage metrics
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