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The Informational Content of Credit Ratings in Brazil: An Event Study

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  • Flávia Cruz de Souza Murcia

    (Universidade Federal de Santa Catarina)

  • Fernando Dal-Ri Murcia

    (Universidade de São Paulo)

  • José Alonso Borba

Abstract

This study analyzes the effect of credit rating announcements on stock returns in the Brazilian market during 1997-2011. We conducted an event study using a sample of 242 observations of listed companies, 179 from Standard and Poor’s and 63 from Moody’s, to analyze stock market reaction. Abnormal returns have been computed using the Market Model and CAPM for three windows: three days (-1, +1), 11 days (-5, +5) and 21 days (-10, +10). We find statistically significant abnormal returns in days -1 and 0 for all the three types of rating announcement tested: initial rating, downgrades and upgrades. For downgrades, consisted with prior studies, our results also showed negative abnormal returns for all practically all windows tested. Overall, our findings evidence the rating announcements do have information content, as it impacts stock returns causing abnormal returns, especially when they bring ‘bad news’ to the market.

Suggested Citation

  • Flávia Cruz de Souza Murcia & Fernando Dal-Ri Murcia & José Alonso Borba, 2013. "The Informational Content of Credit Ratings in Brazil: An Event Study," Brazilian Review of Finance, Brazilian Society of Finance, vol. 11(4), pages 503-526.
    • Handle: RePEc:brf:journl:v:11:y:2013:i:4:p:503-526
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    Cited by:

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    2. Chunling Li & Khansa Pervaiz & Muhammad Asif Khan & Faheem Ur Rehman & Judit Oláh, 2019. "On the Asymmetries of Sovereign Credit Rating Announcements and Financial Market Development in the European Region," Sustainability, MDPI, vol. 11(23), pages 1-14, November.
    3. Abdul Rafay & Yang Chen & Muhammad A.B.Naeem & Maham Ijaz, 2018. "Analyzing the Impact of Credit Ratings on Firm Performance and Stock Returns: An Evidence from Taiwan," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 22(3), pages 771-790, Summer.
    4. Alexandre de Carvalho & Alberto Sanyuan Suen & Felippe Gallo, 2016. "Market Efficiency in Brazil: some evidence from high-frequency data," Working Papers Series 431, Central Bank of Brazil, Research Department.
    5. Gomes, Matheus da Costa & Magnani, Vinícius Medeiros & Albanez, Tatiana & Valle, Mauricio Ribeiro do, 2019. "Effects of market timing on primary share issues in the Brazilian capital market," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 361-377.

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    More about this item

    Keywords

    Credit Rating; Brazilian Market; Event Study;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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