Abstract
We examine the certification effect of initial rating announcements and the signaling effect of rating downgrade announcements in China using a pooled time-series cross-sectional issuer rating data of 170 companies listed on the Shanghai and Shenzhen Stock Exchanges from 2002 to July 2006. The empirical evidence supports our hypothesis of an asymmetric certification effect. Consistent with the literature, we also find some negative signaling effects in our rating downgrade sub-sample. Overall, although there are some qualitative arguments that credit ratings in China do not have information content, our empirical findings suggest otherwise. When a normally positively biased rating agency gives a low rating, it is valuable news to market participants.
Original language | English |
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Pages (from-to) | 790-797 |
Number of pages | 8 |
Journal | Journal of Business Research |
Volume | 61 |
Issue number | 7 |
DOIs | |
Publication status | Published - 1 Jul 2008 |
Bibliographical note
The authors are grateful to Xinhua Far East China Credit Ratings for providing information on its rating methodology and rating data. The authors thank the Hong Kong office of the Standard and Poor's Ratings Services and Moody Ratings Ltd. for providing their lists of rated companies in China. The authors also thank Michael Firth for providing valuable comments and constructive suggestions.Funding
Poon acknowledges a research grant from the Research and Postgraduate Studies Committee of Lingnan University, Hong Kong. Chan's participation is partially funded by a summer research fellow program in the Gordon Ford College of Business at Western Kentucky University. Any remaining errors are ours.
Keywords
- China
- Credit ratings
- Informational content