Asymmetric Trading Responses to Credit Rating Announcements from Issuer- Versus Investor- Paid Rating Agencies

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aut.relation.endpage112
aut.relation.issue1-2
aut.relation.journalJournal of Business Finance and Accounting
aut.relation.startpage84
aut.relation.volume51
dc.contributor.authorNguyen, Quan MP
dc.contributor.authorDo, Hung Xuan
dc.contributor.authorMolchanov, Alexander
dc.contributor.authorNguyen, Lily
dc.contributor.authorNguyen, Nhut H
dc.date.accessioned2024-07-11T02:05:17Z
dc.date.available2024-07-11T02:05:17Z
dc.date.issued2023-01-11
dc.description.abstractThe 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.
dc.identifier.citationJournal of Business Finance and Accounting, ISSN: 0306-686X (Print); 1468-5957 (Online), Wiley, 51(1-2), 84-112. doi: 10.1111/jbfa.12686
dc.identifier.doi10.1111/jbfa.12686
dc.identifier.issn0306-686X
dc.identifier.issn1468-5957
dc.identifier.urihttp://hdl.handle.net/10292/17780
dc.languageen
dc.publisherWiley
dc.relation.urihttps://onlinelibrary.wiley.com/doi/10.1111/jbfa.12686
dc.rights© 2023 The Authors. Journal of Business Finance & Accounting published by John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
dc.rights.accessrightsOpenAccess
dc.rights.urihttp://creativecommons.org/licenses/by/4.0/
dc.subject3502 Banking, Finance and Investment
dc.subject35 Commerce, Management, Tourism and Services
dc.subject1501 Accounting, Auditing and Accountability
dc.subject1502 Banking, Finance and Investment
dc.subjectFinance
dc.subject3501 Accounting, auditing and accountability
dc.subject3502 Banking, finance and investment
dc.titleAsymmetric Trading Responses to Credit Rating Announcements from Issuer- Versus Investor- Paid Rating Agencies
dc.typeJournal Article
pubs.elements-id490658
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