The roles of rating outlooks: the predictor of creditworthiness and the monitor of recovery efforts
Winnie P. H. Poon () and
Jianfu Shen ()
Additional contact information
Winnie P. H. Poon: Lingnan University
Jianfu Shen: The Hong Kong Polytechnic University
Review of Quantitative Finance and Accounting, 2020, vol. 55, issue 3, No 9, 1063-1091
Abstract Using a comprehensive U.S. rating sample from S&P between 1981 and 2015, we examine the information content, responsiveness to credit risk and recovery efforts associated with rating outlooks. We find that rating outlooks (and credit watches) have important information content and are significantly associated with creditworthiness, measured by expected default frequency. More importantly, we show that by assigning negative outlooks, credit rating agencies induce some issuers to exert recovery efforts to prevent subsequent downgrades. The findings support the theoretical prediction of Boot et al. (Rev Financ Stud 19(1):81–118, 2006) that credit rating actions serve as a coordination mechanism between rating agencies and issuers.
Keywords: Rating outlook; Information content; Credit risk; Recovery effort (search for similar items in EconPapers)
JEL-codes: G14 G20 G24 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s11156-019-00868-7 Abstract (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:55:y:2020:i:3:d:10.1007_s11156-019-00868-7
Ordering information: This journal article can be ordered from
Access Statistics for this article
Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee
More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().