A Multi-Country Study of Factors Affecting Credit Ratings Revisions

  • Angeline Siew-Huan Ng Universiti Putra Malaysia
  • Mohamed Ariff Syed Mohamed Sunway University Malaysia
Keywords: Credit rating, New, Affirmation, Confirmation, Withdrawal Ratings, Ordered Probit Model


This paper reveals findings from extending corporate credit rating studies towards (i) new ratings, affirmation, confirmation, watchlists, and withdrawal, which together represent five out of eight rating types yet to be studied rigorously (there are several papers on upgrades and downgrades); and (ii) identifying key firm-specific factors affecting stock prices around the rating revisions in markets not yet studied. The firmspecific factor effects are measured using the Ordered Probit methodology. Results show that investment and speculation grade issues have the most pronounced effects on price changes. Further findings are: interest-coverage, profitability and leverage ratios, all of which stand out as the most relevant firm-specific factors correlated with stock price changes. An interesting new finding is the discovery of corruption perception scores as a new measure is significantly influencing affirmation, confirmation and downgrade ratings. These new findings are likely to be of interest to investors, corporations wanting to know rating change effects and the external regulators concerned with financial weaknesses/strengths of listed firms facing rating changes.


Adams, M., Burton, B., & Hardwick, P. (2003). The determinants of credit ratings in the United Kingdom insurance industry. Journal of Business Finance & Accounting, 30(3‐4), 539- 572.

Agarwal, Y. (2013). Capital structure decisions: Evaluating risk and uncertainty. Singapore: John Wiley & Sons.

Agnello, L., Castro, V., & Sousa, R. M. (2018). The legacy and the tyranny of time: Exit and reentry of sovereigns to international capital markets. Journal of Money, Credit and Banking, 50(8), 1969-1994.

Akhigbe, A., Madura, J., & Whyte, A. M. (1997). Intra‐industry effects of bond rating adjustments. Journal of Financial Research, 20(4), 545-561.

Altman, E, (1968), Financial ratios. Discriminant analysis and the prediction of corporate bankruptcy. Journal of Finance, 28(5), 589-609.

Amato, J. D., & Furfine, C. H. (2004). Are credit ratings procyclical?. Journal of Banking & Finance, 28(11), 2641-2677.

Barron, M. J., Clare, A. D., & Thomas, S. H. (1997). The effect of bond rating changes and new ratings on UK stock returns. Journal of Business Finance & Accounting, 24(3), 497-509.

Becker, B., & Milbourn, T. (2011). How did increased competition affect credit ratings? Journal of Financial Economics, 101(3), 493-514.

Black, B., & Kim, W. (2012). The effect of board structure on firm value: A multiple identification strategies approach using Korean data. Journal of Financial Economics, 104(1), 203-226.

Blume, M. E., Lim, F., & MacKinlay, A. C. (1998). The declining credit quality of US corporate debt: Myth or reality? The Journal of Finance, 53(4), 1389-1413.

Boot, A. W., Milbourn, T. T., & Schmeits, A. (2006). Credit ratings as coordination mechanisms. Review of Financial Studies, 19(1), 81-118.

Brown, C., & Davis, K. (2010). Australia’s experience in the global financial crisis. Chapter 66, Lessons from the financial crisis: Causes, consequences, and our economic future, 537-544.

Bouzouita, R., & Young, A. J. (1998). A probit analysis of best ratings. Journal of Insurance Issues, 21(1), 23-34.

Cai, P., Gan, Q., & Kim, S. J. (2018). Do sovereign credit ratings matter for foreign direct investments?. Journal of International Financial Markets, Institutions and Money, 55, 50-64.

Chan, L. K., Karceski, J., & Lakonishok, J. (2007). Analysts' conflicts of interest and biases in earnings forecasts. Journal of Financial and Quantitative Analysis, 42(4), 893-913.

Christopher, A. (2012). The Credit Rating Controversy. Retrieved from https://web.archive.org/web/20130727223220/http://www.cfr.org/united-states/credit-ratingcontroversy/p22328

Corruption Perceptions Index. (2010). Transparency International. Retreived from https://www.transparency.org/en/cpi/2010

Cunha, I., Ferreira, M. A., & Silva, R. (2016). Can Credit Rating Agencies Affect Election Outcomes? Retrieved from https://www.ofce.sciences-po.fr/pdf-articles/actu/Ferreira.pdf

Dichev, I. D., & Piotroski, J. D. (2001). The long-run stock returns following bond ratings changes. Journal of Finance, 56(1), 173-203.

Doumpos, M., Niklis, D., Zopounidis, C., & Andriosopoulos, K. (2015). Combining accounting data and a structural model for predicting credit ratings: Empirical evidence from European listed firms. Journal of Banking & Finance, 50, 599-607.

Elayan, F. A., Hsu, W. H., & Meyer, T. O. (2003). The informational content of credit rating announcements for share prices in a small market. Journal of Economics and Finance, 27(3), 337-356.

Erdem, O., & Varli, Y. (2014). Understanding the sovereign credit ratings of emerging markets. Emerging Markets Review, 20, 42-57.

Fulghieri, P., Strobl, G., & Xia, H. (2014). The economics of solicited and unsolicited credit ratings. Review of Financial Studies, 27(2), 484-518.

Goh, J. C., & Ederington, L. H. (1993). Is a bond rating downgrade bad news, good news, or no news for stockholders? The Journal of Finance, 48(5), 2001-2008.

Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2), 187-243.

Gray, S., Mirkovic, A., & Ragunathan, V. (2006). The determinants of credit ratings: Australian evidence. Australian Journal of Management, 31(2), 333-354.

Gujarati, D. N. (2003). Basic econometrics. New York: McGraw-Hill Education.

Harford, J., & Uysal, V. B. (2014). Bond market access and investment. Journal of Financial Economics, 112(2), 147-163.

He, Y., Wang, J., & Wei, K. J. (2011). Do bond rating changes affect the information asymmetry of stock trading?. Journal of Empirical Finance, 18(1), 103-116.

Holthausen, R. W., & Leftwich, R. W. (1986). The effect of bond rating changes on common stock prices. Journal of Financial Economics, 17, 57–89.

Ismailescu, I.,& Kazemi, H. (2010). The reaction of emerging market credit default swap spreads to sovereign credit rating changes. Journal of Banking & Finance, 34(12), 2861-2873.

Jain, P. K., Kuvvet, E., & Pagano, M. S. (2017). Corruption’s impact on foreign portfolio investment. International Business Review, 26(1), 23-35.

Jiraporn, P., Jiraporn, N., Boeprasert, A., & Chang, K. (2014). Does corporate social responsibility (CSR) improve credit ratings? Evidence from geographic identification. Financial Management, 43(3), 505-531.

Jorion, P., Liu, Z., & Shi, C. (2005). Informational effects of regulation FD: evidence from rating agencies. Journal of Financial Economics, 76(2), 309-330.

Jorion, P., & Zhang, G. (2007). Information effects of bond rating changes: The role of the rating prior to the announcement. Journal of Fixed Income, 16, 45-59.

Kaplan, R. S., & Urwitz, G. (1979). Statistical models of bond ratings: A methodological inquiry. Journal of Business, 52(2), 231-261.

Karampatsas, N., Petmezas, D., & Travlos, N. G. (2014). Credit ratings and the choice of payment method in mergers and acquisitions. Journal of Corporate Finance, 25, 474-493.

KPMG. (2017). Review: IPOs and other Market Trends. Retrieved from https://assets.kpmg/content/dam/kpmg/cn/pdf/en/2017/12/china-hk-ipo-2017-review.pdf

Lim, T. (2001). Rationality and analysts' forecast bias. The Journal of Finance, 56(1), 369-385.

Livingston, M., & Zhou, L. (2016). Information opacity and Fitch bond ratings. Journal of Financial Research, 39(4), 329-357.

Matolcsy, Z. P., & Lianto, T. (1995). The incremental information content of bond rating revisions: The Australian evidence. Journal of Banking & Finance, 19(5), 891-902.

May, A. D. (2010). The impact of bond rating changes on corporate bond prices: New evidence from the over-the-counter market. Journal of Banking & Finance, 34(11), 2822-2836.

Mellios, C., & Paget-Blanc, E. (2006). Which factors determine sovereign credit ratings?. The European Journal of Finance, 12(4), 361-377.

Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261-297.

Modina, M. (2015). Credit Rating and Bank-Firm Relationships: New Models to Better Evaluate SMEs. UK: Palgrave Macmillan.

Moody’s. (2009). Moody’s rating symbols and definitions. Retrieved from https://www.moodys.com/sites/products/AboutMoodysRatingsAttachments/MoodysRatingSymbolsandDefinitions.pdf

Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221.

Ng, A., & Ariff, M. (2019). Does Credit Rating Revision Affect the Price of a Special Class of Common Stock?. Bursa Istanbul Review, 19(1), S44-S55.

Ozturk, H., Namli, E., & Erdal, H. I. (2016). Reducing Overreliance on Sovereign Credit Ratings: Which Model Serves Better? Computational Economics, 48(1), 59-81.

Podobnik, B., Shao, J., Njavro, D., Ivanov, P. C., & Stanley, H. E. (2008). Influence of corruption on economic growth rate and foreign investment. The European Physical Journal B, 63(4), 547-550.

Ryan, P. A., Villupuram, S. V., & Zygo, J. G. (2017). The value of credit rating changes across economic cycles. Journal of Economics and Business, 92, 1-9.

Safari, M., & Ariff, M. (2015). Sovereign credit rating change in emerging markets and its impact on their financial markets. International Journal of Bonds and Derivatives, 1(3), 203-216.

Shen, C. H., Huang, Y. L., & Hasan, I. (2012). Asymmetric benchmarking in bank credit rating. Journal of International Financial Markets, Institutions and Money, 22(1), 171-193.

Standard & Poor's. (2006). Standard & Poor's Corporate Ratings Criteria. Retrieved from http://sbufaculty.tcu.edu/mann/_Inv%20II%20F09/S&P%20Ratings%20criteria%20-202006.pdf

Standard & Poor's. (2017). Default, Transition, and Recovery: 2017 Annual Global Corporate Default Study and Rating Transitions. New York: NY. Retrieved from https://www.spglobal.com/en/research-insights/articles/default-transition-and-recovery-2017-annualglobal-corporate-default-study-and-rating-transitions

Sufi, A. (2009). The real effects of debt certification: Evidence from the introduction of bank loan ratings. The Review of Financial Studies, 22(4), 1659-1691.

Tang, T. T. (2009). Information asymmetry and firms’ credit market access: Evidence from Moody's credit rating format refinement. Journal of Financial Economics, 93(2), 325-351.

White, L. J. (2002). The credit rating industry: An industrial organization analysis. Ratings, Rating Agencies And The Global Financial System. In Levich, R. M., Majnoni, G., Reinhart, C. M. (Eds), Ratings, Rating Agencies and the Global Financial System (pp.41-63). Boston: Springer.

Wilhelm, P. G. (2002). International validation of the corruption perceptions index: Implications for business ethics and entrepreneurship education. Journal of Business Ethics, 35(3), 177-189.

Vives, X. (2006). Banking and regulation in emerging markets: The role of external discipline. The World Bank Research Observer, 21(2), 179-206.

How to Cite
Angeline Siew-Huan Ng, & Mohamed Ariff Syed Mohamed. (2020). A Multi-Country Study of Factors Affecting Credit Ratings Revisions. International Journal of Business and Society, 21(3), 1424-1443. https://doi.org/10.33736/ijbs.3362.2020