Credit contagion and competitive effects of bond rating downgrades along the supply chain

Jung-Hsien Chang, Mao-Wei Hung and Feng-Tse Tsai

Finance Research Letters, 2015, vol. 15, issue C, 232-238

Abstract: This study investigates credit risk effects of credit rating downgrades on downgraded firms’ intra-industry rivals (horizontal relation), suppliers and customers (vertical relation). Using event study approach, we analyze credit default swap (CDS) spread changes for downgraded firms’ rivals, suppliers and customers. The result shows that rivals and suppliers experience significant credit spread increases during bond rating downgrades. Suppliers suffer from vertical credit contagion only conditioning on occurrence of horizontal credit contagion (increasing credit risk among intra-industry rivals). When horizontal credit competitiveness happens (decreasing credit risk among intra-industry rivals), customers appear to have vertical credit competitive effects.

Keywords: Credit risk; Credit rating; Contagion effect; Competitive effect; Supply chain (search for similar items in EconPapers)
JEL-codes: G10 G14 G30 G33 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612315001014
Full text for ScienceDirect subscribers only

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:eee:finlet:v:15:y:2015:i:c:p:232-238

DOI: 10.1016/j.frl.2015.10.006

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().