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Abstract:
This study examines the information value of rating changes announcements in the United Kingdom (UK). The study focuses on the bond rating changes assigned by S&P Corporation and Moody's Corporation in the UK between 1997 and 2006. The main purpose of this study is to determine whether there is significant support for the private information hypothesis based on evidence of bond rating changes announcements and their impact drawn from this period. Based on a standardised cross-sectional parametric t-test, as proposed by Boehmer, Musumeci and Poulsen (1991), on 299 corporate bond rating changes announced by S&P and Moody's, based on sub-period analysis, no abnormal share return is detected in the UK. However, the rating downgrade announcements show significant negative market reaction. A multivariate regression analysis revealed that the rating agencies have a significant influence on abnormal return on the day of upgrade and downgrade announcements. The result also shows that the market participants had no anticipation of the downgrade news, and the negative pressure on the share price will be less if the rating downward are within the grade (i.e. from AA+ to AA).
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