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  4. Big is beautiful: the information content of bank rating changes
 
Verlagslink DOI
10.1108/JRF-10-2014-0156

Big is beautiful: the information content of bank rating changes

Veröffentlichungsdatum
2015-03-13
Autoren
Fieberg, Christian  
Körner, Finn Marten  
Prokop, Jörg  
Varmaz, Armin  
Zusammenfassung
Purpose – The purpose of this paper is to study the information content of about 3,300 global bank rating changes before and after the Lehman bankruptcy in September 2008 to assess if differences in stock market reactions for small and big banks emerge.
Design/methodology/approach – The analysis of the stock market reactions of rating changes (upgrades and downgrades) and bank’s size (small and big) is conducted by an event study approach.
Findings – The authors find that while upgrades are not associated with significant abnormal bank stock returns, downgrades have a significantly negative effect. This result holds for both small and big banks, while negative abnormal returns are considerably stronger for the former. For small banks, the authors observe an increase in negative cumulative abnormal returns post-Lehman. The lack of a reaction to large banks’ rating downgrades in the narrow [ 1, 1] event window indicates that their stock prices may, to some extent, be insulated from negative rating information even post-Lehman, which the authors attribute to an implicit “too big to fail” subsidy anticipated by equity investors.
Originality/value – This paper provides insights to the differences in the information content of changes in small and big banks’ credit rating on stock returns that is unrelated to the well-known size effect. Compared to small banks, big banks seem to some extent be insulated from negative rating changes even post-Lehman – contributing to the on-going too big to fail debate.
Schlagwörter
Event study

; 

Credit rating

; 

Lehman bankruptcy

; 

SIFI

; 

Too big to fail
Institution
Hochschule Bremen  
Fachbereich
Hochschule Bremen - Fakultät 1: Wirtschaftswissenschaften - School of International Business (SiB)  
Dokumenttyp
Artikel/Aufsatz
Zeitschrift/Sammelwerk
The Journal of Risk Finance  
Band
16
Heft
3
Startseite
233
Endseite
252
Zweitveröffentlichung
Nein
Sprache
Englisch

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