Mascia Bedendo (Audencia School of Management)
24 September 2015 @ 12:45
- Past event
“Reputational Shocks and the Information Content of Credit Ratings”
(Note: the seminar is on Thursday)
ABSTRACT
In the last two decades Credit Rating Agencies (CRAs) have faced extensive criticism for their rating practices and business models. We examine to what extent a number of significant reputational shocks suffered by CRAs (i.e. the Enron/WorldCom scandals, the subprime crisis, and the S&P lawsuit filed by the U.S. government) have altered the information content of corporate rating actions. Using an event study methodology we find evidence that the stock price response to downgrades strengthens significantly following a reputational shock. Further, following the Enron scandal and the subprime crisis, the effect is more pronounced for investment-grade issuers than for riskier firms. Our findings hold after controlling for the introduction of regulatory measures such as the Sarbanes-Oxley Act and the Dodd-Frank Act.