Follow the money: Investor trading around investor-paid credit rating changes

Utpal Bhattacharya (), Kelsey D. Wei and Han Xia

Journal of Corporate Finance, 2019, vol. 58, issue C, 68-91

Abstract: Using institutional equity trading data, we find that a set of small institutional investors consistently follow credit ratings issued by an investor-paid rating agency in their trading decisions. Although rating information is credit related, we find that these followers often respond more strongly to investor-paid ratings than to influential trading signals, such as earnings announcements, analysts' earnings forecast revisions, and recommendation changes. Followers outperform non-followers, and show improved trading performance after becoming followers. We conclude that investor-paid rating agencies offer small institutional investors a cost-effective alternative to in-house research.

Keywords: Investor-paid credit rating agencies; Credit ratings; Capital market regulation (search for similar items in EconPapers)
JEL-codes: G11 G14 G24 G28 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:58:y:2019:i:c:p:68-91

DOI: 10.1016/j.jcorpfin.2019.04.008

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