Do Credit Rating Announcements Have Informational Value ...

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included 15 upgrades and 43 downgrades that occurred with no rating change in the previous 35
weeks. Richards and Deddouche (2003) reported that during the 35 week period pr ior to the
rating upgrades showed cumulative abnormal returns of -1 percent whereas downgrades showed
an average of -13 percent cumulative abnormal returns over the same period. When downgrades
are divided into two groups based on whether they occurred before or after the start of the Asian
crisis the results are -20% (after) and -7% (before). They suggest that this may represent evidence
that the agencies were slower than usual in their actions in the case of the initial downgrades that
followed the onset of the Asian crisis.
When examining the announcement and post-announcement periods Richards and Deddouche
(2003) found very surprising results. They found negative abnormal returns following upgrades
and positive abnormal returns following downgrades. The authors do, however, point out that the
negative abnormal returns during the 35 weeks before downgrades are substantial compared to
the announcement window effects, which might suggest that the market is efficient and has
already incorporated into prices the bad news that rating agencies eventually act upon.
Elayan, Hsu and Meyer (2003) published another study during the same year. Their focus was on
the rating announcement effects in New Zealand. Their results were contradicting to previous
research as they found significant positive market reactions related to positive CreditWatch and
upgrades. They also found negative CreditWatch and downgrades to be accompanied by
significant negative effects. The excess returns for downgrades during the two day period [-1,0]
was reported to be -2,28%. The authors argue that their findings can be explained by the fact that
in a small and possibly neglected market the information provided by CRAs conveys value to
investors as the information asymmetries are bigger.
Li, Visaltanachoti and Kesayan (2004) were the first ones to study Nordic markets. They studied
rating actions in Sweden and their sample included 83 credit rating announcements between
February 1992 and February 2003. They found upgrades to result in significant positive stock price
reaction, more specifically, 5,36% during t+1 to t+10 and 5,39% during t+1 to t+20. After
downgrades they did not find a significant effect which, as they point out, indicates that the
market had already anticipated the information provided by the rating agencies. These results are
very interesting since they contradict previous findings as well as the researcher´s anticipation.
Also their results on the abnormal returns after outlook announcements were surprising. They