The informational content of unsolicited ratings

This paper investigates whether the stock market reacts to unsolicited ratings for a sample of firms rated by S&P between January 1996 and December 2005. We first analyze the stock market reaction to the assignment of an initial unsolicited rating. We find evidence that this reaction is negative and particularly accentuated for small Japanese firms. We then analyze the stock market reaction to changes in unsolicited ratings for a Japanese sub-sample and find that here too the stock market reacts negatively. Our results imply that unsolicited ratings convey new information to the stock market and that investors react to this information. Although unsolicited ratings are based on publicly available information only, the stock market seems to be inefficient in processing this information for Japanese companies.