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Market Reaction to Bond Downgradings Followed by Chapter 11 Filings

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  • Keqian Bi
  • Haim Levy

Abstract

Over time, the bond ratings of companies mired in financial difficulties are usually downgraded by rating agencies such as Standard & Poor's or Moody's, After the ratings are lowered, some companies slide down into the abyss of bankruptcy, while others survive by reorganization. Our study examines the impact of bond downgradings on the market, focusing on the sensitivity of the market, i.e., the change of stock prices, in detecting the likelihood of bankruptcy of companies which receive the same degree of bond downgradings. Our systematic and empirical approach, in which we introduce the concept of first consistent downgrading, is unique from previous studies on bond rating changes.

Suggested Citation

  • Keqian Bi & Haim Levy, 1993. "Market Reaction to Bond Downgradings Followed by Chapter 11 Filings," Financial Management, Financial Management Association, vol. 22(3), Fall.
    • Handle: RePEc:fma:fmanag:bi93
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    Cited by:

    1. Martin Feinberg & Roger Shelor & James Jiang, 2004. "The Effect of Solicitation and Independence on Corporate Bond Ratings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(9‐10), pages 1327-1353, November.
    2. 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.
    3. María Concepción Verona Martel & José Juan Déniz Mayor, 2011. "Las agencias de rating y la crisis fi nanciera de 2008: ¿El fi n de un poder sin control?," Revista Criterio Libre, Universidad Libre - Sede Principal, June.

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