International Journal of Business and Economics Volume 22, No. 1 June, 2023

Effect of Initial Rating and Reaffirmed Rating Announcements on Stock Return - An Event Study Approach

Manisha Kumari

Paari School of Business, SRM University AP, India

Abstract

This article examined the impact of initial bond rating and reaffirmed rating announcements on stock price in the Indian stock market. This study also demonstrates the market's effectiveness in terms of rating announcements. It could be quite helpful to watch rating announcements while making an investment choice, since empirical research demonstrates a substantial correlation between rating announcements and stock movements. The correlation between rating announcements and stock prices has been studied using the event study method. To examine the impact of an event on variables, this is frequently used in finance and economics. Data for the BSE 100 companies' initial rating and reaffirmed rating of bonds, market index/return, and stock price are taken from the Prowess IQ CMIE database between 2010 and 2018. The study's findings indicate that the market responds favourably immediately following an announcement, but no change in stock prices has been seen after a few days of announcements. Additionally, the abnormal return and cumulative abnormal return t-statistics were shown to be substantially different from zero. The conclusion drawn from the results is that the Indian bond market is in quite solid shape. Examining the impact of original and reinforced rating announcements on stock price provides a fresh perspective to the finance literature.

Keywords：Bond Rating, Stock Price, Probability of Default, Information Asymmetry, Rating Announcements

JEL Classifications：G12, G14, G24

BACK