This paper examines whether credit ratings convey information about the firm’s future earnings to the capital markets. Using the future earnings response coefficient methodology, we find that the current stock returns of rated firms reflect more future earnings than do the stock returns of...

In this paper we use credit rating data from two large Swedish banks to elicit evidence on banks’ loan monitoring ability. For these banks, our tests reveal that banks’ credit ratings indeed include valuable private information from monitoring, as theory suggests. However, our tests also...

This paper investigates the impact of credit rating changes on the sovereign spreads in the European Union and investigates the macro and financial factors that account for the time varying effects of a given credit rating change. We find that changes of ratings are informative, economically...

This article investigates empirically whether foreign and domestic credit rating agencies tightened their standards for evaluating Japanese regional banks from 2000 to 2009. We extend and enhance previous studies by estimating an ordered probit model using pooled data for this period. Our...

The purpose of this paper is to inform investors of differences in opportunistic behavior between managers of BBB- and BB-graded firms as measured by earnings management and accounting conservatism. Previous studies investigate the gaps between grades and between investment and speculative...

This paper establishes that credit ratings affect the choice of payment method in mergers and acquisitions. We find that bidders holding a high rating level are more likely to use cash financing in a takeover. We attribute this finding to lower financial constraints and enhanced capability of...

We examine the relationship between credit ratings and bond yield spreads of peripheral countries in the euro area (Greece, Ireland, Italy, Portugal and Spain) for the period 1995-2014. Since 2012, bond spreads of those countries have come down very fast, whereas credit ratings have hardly...

Purpose – The purpose of this paper is to examine empirically whether the market discipline works, and if so, whether it is a complement or substitute of prudential regulation in the insurance markets. Market discipline is intended as “the power of … market forces … to evaluate and...

This paper examines the ongoing reputational crisis of credit rating agencies (CRAs) and asks if the CRAs are playing a credible role in financial markets. The current crisis supports the proposition of scepticism on the credibility of CRAs which did not properly disclose risk and thus...

We use EU sovereign bond yield and CDS spreads daily data to carry out an event study analysis on the reaction of government yield spreads before and after announcements from rating agencies (Standard & Poor’s, Moody’s, Fitch). Our results show significant responses of government bond yield...