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Does credit rating revision affect the price of a special class of common stock?

Author

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  • Angeline Ng
  • M. Ariff

Abstract

This paper reports stock return changes induced by credit rating revisions disclosed by credit-rating agency in one stock market, where there is a list of special stocks. Do stock prices of Shariah-compliant special firms react to credit rating disclosures? There is a rich literature on credit rating revisions affecting rated firm's stock prices, not the special stocks. The findings reported in this paper suggest stock prices react significantly to credit change disclosures. We also find the average change in the special stock price returns significantly correlated with four key firm-specific variables: two working capital ratios, leverage and profit margin. These findings offer evidence that the special common stocks traded in several key world stock markets could have similar price reactions to credit rating change disclosures in line with the effects known for ordinary common stocks studied to-date. The findings reported here may prompt further studies on other special stocks in other markets

Suggested Citation

  • Angeline Ng & M. Ariff, 2019. "Does credit rating revision affect the price of a special class of common stock?," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 19(Supplemen), pages 44-55, August.
    • Handle: RePEc:bor:bistre:v:19:y:2019:i:s1:p:44-55
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    More about this item

    Keywords

    Shariah-compliant firms; Credit rating changes; Stock prices; New ratings; Affirmation ratings; Price factors; Event study;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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