Impact of credit rating agencies on European Banking stock prices: Is the recognition of credit rating agency important?

The basic goal of the article was to analyse the reaction of rates of return of banks’ shares to the changes of their credit ratings. There first hypothesis is as follows: Rating events convey new information and lead to statistically significant abnormal reactions. The second one is: The rate of return reaction is stronger on the decrease than increase of banks’ credit ratings. The last hypothesis that has been taken into considerations is: The changes of credit ratings proposed by smaller CRAs influence is ineffective on the rate of returns of banks’ shares. For verification of these hypothesis daily rates of return and differences between the logarithmized rates of returns are used. As dependent variables long term issuer credit ratings proposed European banks by the recognizable and smaller CRAs form 1980 to 2015 period of time are used. The analysis has been prepared in the subsamples according to: the type of credit rating, the recognizable credit rating agency and political division. The information about the upgrade and downgrade of credit ratings published by the smaller CRAs has insignificant influence on the abnormal returns. Banks in the developing economies reaction is stronger on the positive changes, but rates of return of banks’ shares in the developed countries are more sensitive to the downgrade of credit ratings. The moment of the reaction in particular countries is differentiated.