Journal of Economics and Finance

, Volume 21, Issue 2, pp 75–82 | Cite as

Bond review and rating change announcements: An examination of informational value and market efficiency

  • Richard A. Followill
  • Terrence Martell


This paper examines the impact of announcements of both bond rating reviews and rating changes on equity returns. We find that announcements of review for possible down grading of debt have a significant negative effect on stock prices while subsequent actual downgrades have a negligible impact. Further, we find that press releases convey new information to the market whereas the subsequent reporting of this information in the financial press causes little market reaction. We conclude that extreme care regarding details of the dissemination of financial information must be exercised in any event study.


Stock Price Stock Return Abnormal Return Press Release Excess Return 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Brown, Steven J., and Warner, Jerold B. (1985) Using Daily Stock Returns: The Case of Event Studies.Journal of Financial Economics 14: 3–31.CrossRefGoogle Scholar
  2. Glascock, John L., Davidson, Wallace N., and Henderson, Glen V.. “Announcement Effects of Moody's Bond Rating Changes on Equity Returns.”Quarterly Journal of Business and Economics 26 (1987): 67–78.Google Scholar
  3. Goh, Jeremy C., and Ederington, Louis H., “Is a Bond Rating Downgrade Bad News, Good News, or No News for Stockholders?“Journal of Finance 48 (1993): 2001–2008.CrossRefGoogle Scholar
  4. Griffin, Paul, and Sanvicente, Antonio, “Common Stock Returns and Rating Changes: A Methodological Comparison.”Journal of Finance 37 (1982): 103–119.CrossRefGoogle Scholar
  5. Hand, John R. M., Holthausen, Robert W., and Leftwich, Richard W.. “The Effect of Bond Rating Changes on Bond and Stock Prices.”Journal of Finance 47 (1992): 733–752.CrossRefGoogle Scholar
  6. Holthausen, Robert W., and Leftwich, Richard W.. “The Effect of Bond Rating Changes on Common Stock Prices.”Journal of Financial Economics 17 (1986): 57–89.CrossRefGoogle Scholar
  7. Impson, C. Michael, Karafiath, Imre, and Glascock, John. “Testing Betas Stationarity Across Bond Rating Changes.”Financial Review 27 (1992): 607–618.CrossRefGoogle Scholar
  8. Pinches, George E., and Singleton, J. Clay. “The Adjustment of Stock Prices to Bond Rating Changes.”Journal of Finance 33 (1978): 29–44.CrossRefGoogle Scholar
  9. Wansley, James W., and Clauretie, Terrence M.. “The Impact of Credit Watch Placement on Equity Returns and Bond Prices.”Journal of Financial Research 8 (1985): 31–42.Google Scholar

Copyright information

© Springer 1997

Authors and Affiliations

  • Richard A. Followill
    • 1
  • Terrence Martell
    • 2
  1. 1.Department of Economics and FinanceEast Tennessee State UniversityJohnson City
  2. 2.Center for ManagementBaruch CollegeNew York City

Personalised recommendations