The Study On The Announcement Effect And Influence Factors Of Credit Rating Modification In Stock Market

Credit rating change and credit watch are the main forms of credit rating modification, an important way for investors to know about the company's credit quality and a practical tool to disclose the credit risks of issuers. The credit risk is always one of the main risks that the market participants concern about. The construction of credit rating agencies with reputation is a booster to support the nation's financial stability and development. The study of announcement effect of rating modification is a disscussion about the influence and credibility of credit rating agencies in China, which could provide references for capital market participants, financial supervision institutions and credit rating agencies.The main research methods this paper use are descriptive statistical analysis, event study and cross-sectional regression. After a brief review of the relevant theories and study status home and abroad, we first analysis the present situation of credit rating modifications in our country. Then, through event study, this paper examines the announcement effects of credit rating modification on stock price and volatility, compare the differences between rating changes and credit watch. Finally, through cross-sectional regression analysis, this paper make a study to identify the influence factors that affect the stock market's reaction to rating modification from aspects of the magnitute of credit rating changes, regulatory pressure, announcement type and firm's characteristics, etc.Based on the rating modifications and stock price data fro m 2007 to 2013 in our country, the results shows that there is asymmetry in the announcement effects of credit rating modifications in China: only negative modifications have significant impacts on stock market; the negative rating modifications have singnificant negative abnormal stock return and increase the stokc volatility. Compared downgrades and negative credit watch, downgrades are more easily anticipated by the market participants; the negative abnormal stock return of the negative credit watch is more significant during the announcement day, credit rating agencies own superior skill in interpreting the increase of credit risk. The magnitude of rating change, announcement type, price-to-sales ratio and financial leverage are factors that influent the announcement effects of rating modification. From two aspects of direction and amount, the downgrades reflect the situation of the decline of the rating objects' credit qualities, the credit rating of our county is of information value.The conclusion above could make the market participants better understand the contents and the market impacts of rating change and credit watch, which can help the investors better understand the credit rating modification and offer them a guidance for investment decision.