Effect of credit rating changes on Australian stock returns

Abstract

Abstract We study the impact credit rating revisions have on stock returns of Australian firms rated by Standard & Poor's and Moody's. Our evidence is consistent with that documented in the USA showing that only downgrades contain price‐relevant information. The reaction is most significant when the downgrade: (i) is unanticipated; (ii) is for an unregulated firm; and (iii) reduces the firm's rating by more than one category.

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