The information content of Standard and Poors bank loan ratings : a thesis submitted in partial fulfillment of the requirements for the degree of Masters degree of Business Studies, Massey University

Abstract

Empirical work byJames (1987) and Lummer andMcConnell'(1988) among others has established Bank Credit announcements provoke abnormal equity market responses, particularly for firms displaying information asymmetry. This is theorised to be due to the new information imparted to the market in the announcement. Bank Loan markets have undergone substantial change in recent years as commercial bank loans have been transformed into investment commodities. This has seen Bank loans take on more capital market product characteristics including the use of independent Bank Loan Ratings to assess the risk of Bank Loans.

In this paper we examine whether Bank Loan Rating Announcements provide the same level of new information to markets. We find they do not provoke a response different from that seen in conventional bond rating announcements. We reason this is due to the fact that the rating agency monitoring certifies firm risk and thereby lowers information asymmetry levels overall. This may be the source of further research.