Asymmetric trading responses to credit rating announcements from issuer- versus investor-paid rating agencies

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dc.citation.issue1-2
dc.citation.volume51
dc.contributor.authorNguyen QMP
dc.contributor.authorDo HX
dc.contributor.authorMolchanov A
dc.contributor.authorNguyen L
dc.contributor.authorNguyen NH
dc.date.accessioned2024-05-14T21:48:21Z
dc.date.available2024-05-14T21:48:21Z
dc.date.issued2024-01
dc.description.abstractThe credit rating industry has traditionally followed the “issuer-pays” principle. Issuer-paid credit rating agencies (CRAs) have faced criticism regarding their untimely release of negative rating adjustments, which is attributed to a conflict of interests in their business model. An alternative model based on the “investor-pays” principle is arguably less subject to the conflict of interest problem. We examine how investors respond to changes in credit ratings issued by these two types of CRAs. We find that investors react asymmetrically: They abnormally sell equity stakes around rating downgrades by investor-paid CRAs, while abnormally buying around rating upgrades by issuer-paid CRAs. Our study suggests that, through their trades, investors capitalize on value-relevant information provided by both types of CRAs, and a dynamic trading strategy taking advantage of this information generates significant abnormal returns.
dc.description.confidentialfalse
dc.edition.editionJanuary-February 2024
dc.format.pagination84-112
dc.identifier.citationNguyen QMP, Do HX, Molchanov A, Nguyen L, Nguyen NH. (2024). Asymmetric trading responses to credit rating announcements from issuer- versus investor-paid rating agencies. Journal of Business Finance and Accounting. 51. 1-2. (pp. 84-112).
dc.identifier.doi10.1111/jbfa.12686
dc.identifier.eissn1468-5957
dc.identifier.elements-typejournal-article
dc.identifier.issn0306-686X
dc.identifier.urihttps://mro.massey.ac.nz/handle/10179/69559
dc.languageEnglish
dc.publisherJohn Wiley and Sons, Ltd
dc.publisher.urihttps://onlinelibrary.wiley.com/doi/10.1111/jbfa.12686
dc.relation.isPartOfJournal of Business Finance and Accounting
dc.rights(c) 2023 The Author/s
dc.rightsCC BY 4.0
dc.rights.urihttps://creativecommons.org/licenses/by/4.0/
dc.subjectcredit ratings
dc.subjectinstitutional investors
dc.subjecttrading strategy
dc.titleAsymmetric trading responses to credit rating announcements from issuer- versus investor-paid rating agencies
dc.typeJournal article
pubs.elements-id459588
pubs.organisational-groupOther
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