Credit rating downgrades and stock price crash risk: International evidence

Thu Ha Nguyen, Yihui Lan, Sirimon Treepongkaruna and Rui Zhong

Finance Research Letters, 2023, vol. 55, issue PB

Abstract: We document a significant decline in the likelihood of firm-specific stock price crashes after the announcement of credit rating downgrades in 69 countries. This finding supports the argument that credit rating agencies (CRAs) contribute to the disseminating of negative information in the equity market by issuing rating downgrades. Our results remain robust after various tests for endogeneity. Further analysis shows that the negative relationship between rating downgrades and stock price crashes is amplified by information opacity. These findings shed light on the role of CRAs in promoting the flow of negative information into the equity market and enhancing its stability.

Keywords: Credit rating downgrades; Stock price crash risk; Negative Information Hoarding; Information opacity (search for similar items in EconPapers)
JEL-codes: G14 G15 G33 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003616

DOI: 10.1016/j.frl.2023.103989

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