HOW DO RATING AGENCIES’ DECISIONS IMPACT STOCK MARKETS? A META‐ANALYSIS

The purpose of this study is to examine how credit rating agencies’ decisions impact the stock market using a systematic and quantitative review of existing empirical studies. Specifically, we employ a meta‐regression analysis (MRA) to investigate the extent and nature of the effect of rating agencies’ decisions on the stock market. We survey 62 studies published between 1978 and 2015. Our first finding is that the cumulative average abnormal returns calculated from this empirical literature are affected by publication bias. After controlling for publication bias, the main findings of our meta‐analysis indicate that negative rating decisions cause statistically significant negative abnormal returns. This evidence suggests an informational effect. Our results also indicate that positive rating decisions do not have a significant effect. Finally, the MRA results reveal the importance of several factors related to primary study design, as well as to the nature of the data.     

Do rating agencies’ decisions impact stock risks? Evidence from European markets

This article analyses the effect of rating agencies’ decisions on stock risks for European issuers concerning five kinds of events. Our approach is an extension of dummy variable regression event study methodology, using a GARCH(1,1) estimation to capture simultaneously the impact on both systematic and specific stock risks. This new methodology allows us to obtain both global results by categories of rating decisions and individual results, event by event. We document, globally, a positive impact of upgrading on systematic risk, a negative impact of rating confirmation on specific risk, and no significant impact in all other cases. Regarding event-by-event results, the proportion of rating actions exhibiting a significant effect on risk is almost always observed between 20% and 30%. The weak evidence of a global effect on systematic risk may be due to the lack of informational content of the rating decisions on the stocks’ risk, or the existence of rebalancing effects between systematic and idiosyncratic risks. Furthermore, it should be noticed that the decline in volatility in case of a rating affirmed is an insight of the certification role played by the agencies.     

Do Upgradings and Downgradings Convey Information? An Event Study of the French Bond Market

This study has two purposes:

• 1 

  To present an alternative method for the study of events related to bond spreads applicable when only a small number of events is available;

       

Franco-Chinese Joint-Venture Formation and Shareholder Wealth

The main purpose of this article is to test the stock market reaction to Franco-Chinese joint venture announcements and to determine whether it is correlated with joint venture-specific and partner-specific factors. Certain factors specific either to Franco-Chinese joint ventures' characteristics (such as coastal or inland location of French investors in China, capital ownership of French and Chinese partners in the joint ventures, announcement date, business activity of the Franco-Chinese joint ventures) or to French partners (such as their experience in managing Franco-Chinese joint ventures, their international, European experience, and more particularly their experience of Asia) will be analysed with respect to their shareholder value creation. A research sample was prepared from the publication of information on Franco-Chinese joint venture announcements in the French daily newspapers Les Echos and La Tribune between 1994 and 2000 (seven years were analysed). It is important to stress that the announcements used in this sample corresponded to the sole formation of joint ventures. This research sample was made up of 47 Franco-Chinese joint venture announcements for which the relevant abnormal returns (AAR and CAAR) were evaluated. A negative and significant valuation effect was reported for Franco-Chinese joint venture announcements for a reduced event window spanning 7 days around the day of announcement. Among the eight different variables associated with shareholder value creation, only two of them appear to be statistically significant: announcement date and international experience of French partners. First, two opposite time trends were stated in the stock market reaction (negative reaction from 1994 to 1997 and positive from 1998 to 2000). Second, French companies possessing high international experience benefit from an important and positive stock market reaction.