Informational content of corporate ratings in a developing country: the case of Brazilian firms

Rosemarie Bröker Bone () and Eduardo Ribeiro
Additional contact information
Rosemarie Bröker Bone: Universidade Federal do Rio de Janeiro

Economics Bulletin, 2013, vol. 33, issue 1, 35-45

Abstract: A corporate rating is an opinion from a rating agency about the debt payment capacity and willingness to pay of a private issuer. In principle, ratings issued by a third party should be unbiased and provide private information on credit quality to the market. Yet many researchers argue that such ratings only reflect market information. The aim of this article is to evaluate the informational content of foreign currency non-bank corporate credit ratings in Brazil. This is an interesting case as an emerging economy with short rating experience. We employ two complementary methodologies. First, an ordered probit model on credit rating using firm level information is estimated to predict firm ratings. Second, an event study is conducted to assess the effect of credit rating changes on abnormal firm returns. If ratings do not carry new information, they should be predictable and should not generate abnormal returns. Our estimates suggest that (i) ratings are not easily predicted using firm data, although they seem very sensitive to aggregate economic changes; (ii) the rating changes do not influence firm stock returns.

Keywords: corporate ratings; Brazil; event study. (search for similar items in EconPapers)
JEL-codes: C5 G3 (search for similar items in EconPapers)
Date: 2013-01-08
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.accessecon.com/Pubs/EB/2013/Volume33/EB-13-V33-I1-P4.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-12-00679

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().