Do Announced Credit Rating Revisions Create Wealth Transfer Effects between Stockholders and Bondholders of European Firms?

39 Pages Posted: 24 Aug 2016

See all articles by Steffen Hundt

Steffen Hundt

University of Freiberg

Björn Sprungk

University of Chemnitz, Department of Numerical Mathematics

Andreas Horsch

Freiberg University

Date Written: August 21, 2016

Abstract

Wealth transfer effects between stockholders and bondholders on the announcement date of changes in a firm’s credit rating have primarily been examined a) for one type of security; b) on US capital markets; and c) by applying standard event study methods. In contrast to these investigations, we compare the price effects of stocks and corporate bonds of the same issuer using state-of-the-art event study methods. Our findings indicate that downgrades convey new information for stockholders and bondholders, whereas upgrades are only perceived positively by bondholders. Finally, we do not find evidence for the existence of wealth transfer effects on capital markets.

Keywords: Credit Ratings, Event Study, Rating Agencies, Wealth Transfer Effects, Robust Regression

JEL Classification: G14, G15, G24, G32, G34

Suggested Citation

Hundt, Steffen and Sprungk, Björn and Horsch, Andreas, Do Announced Credit Rating Revisions Create Wealth Transfer Effects between Stockholders and Bondholders of European Firms? (August 21, 2016). Available at SSRN: https://ssrn.com/abstract=2827331 or http://dx.doi.org/10.2139/ssrn.2827331

Steffen Hundt (Contact Author)

University of Freiberg ( email )

Schlossplatz 1
Freiberg, DE 09599
Germany

Björn Sprungk

University of Chemnitz, Department of Numerical Mathematics ( email )

Reichenhainer Straße 39
Chemnitz, 09107
Germany

Andreas Horsch

Freiberg University ( email )

Freiberg, D-09599
Germany

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