Effect of corporate credit rating changes: Evidence from the Russian stock market

Abstract

This study is aimed to examine the effect of corporate credit ratings changes on the Russian stock market. Our research is implemented for two major types of credit events which are rating upgrades and downgrades. In this paper we deal with corporate credit ratings assigned by three leading international credit rating agencies, i.e. Fitch, Moody’s, and S&P. A sample of 47 most liquid Russian companies listed on the MICEX stock exchange provided us with a list of 158 credit events experienced by these firms from 2003 to 2015. In contrast to previous empirical studies conducted in this field, we examine the effect in question using not only stock prices but also stock bid-ask spreads. This research methodology has not been applied before and is assumed to provide us with brand-new insights into market microstructure response to the effect of rating changes. Based on the empirical results of the study, we conclude that rating downgrades have significant negative effect on stock prices within the event window. Conversely, rating upgrades are followed by rather moderate positive price changes with significantly lower magnitude. Additionally, positive rating changes narrow down stock bid-ask spreads. The opposite reaction is reported for rating downgrades which result in generally wider bid-ask spreads.