The Influence Of Credit Rating Change On Stock Yield Volatility

As a necessary condition for bond issuance,credit rating plays a very important role in bond pricing and supervision.It concerns a country’s financial infrastructure and capital pricing power,and is an important tool to alleviate information asymmetry among market participants.As one of the gatekeepers of the financial market,credit rating plays a pivotal role in preventing systemic financial risks.However,in recent years,frequent bond defaults have exposed rating quality problems,which have caused the market and academia to question the value of credit rating.The credit rating results,as an important reference for investors,sometimes do not play a due role in early warning,and frequent rating adjustment and asymmetry between rating upgrade and downgrade have exposed the quality problems of credit rating.Most of the previous research perspectives on the effectiveness of credit rating focused on the bond market itself,ignoring the interconnection between the bond market and the stock market in the modern financial market.In view of this,this paper studies the investment value of credit rating changes on the stock market from the perspective of "debt-equity linkage",hoping to make a modest contribution to the research on the value of credit rating.This paper takes A-share listed companies with subject credit rating changes from the beginning of 2007 to the end of 2021 as research samples,uses stock cumulative abnormal return(CAR)to measure the reaction degree of credit rating changes to stock prices,and uses event study method and regression analysis method to empirically analyze the impact of credit rating changes on stock price fluctuations.This paper firstly reviews the relevant researches of domestic and foreign scholars on the information content of credit rating,and proposes research hypotheses according to the theories of information asymmetry theory,principal-agent theory,reputation effect,efficient market hypothesis,signal transmission and discretionary disclosure hypothesis.Then,the impact of credit rating changes on stock returns is studied using event study method and regression analysis method,and the research hypothesis is verified.In the empirical research part,this paper firstly uses the event study method to establish the market adjustment model,and takes(-120,120)as the event window to study the change trend of the cumulative average abnormal return of stocks when the credit rating changes,and then conducts the T test to observe the significance of different time Windows.Secondly,using the common regression analysis method,the CAR of the seven time Windows(-119,0),(-59,0),(-59,-30),(-50,50),(-29,0),(-30,30)and(1,30)were set as the explained variables to further analyze the information effect of credit rating changes.The empirical findings are as follows: First,consistent with most previous literature studies,the impact of credit rating changes on the stock market is asymmetrical,that is,when the credit rating is upgraded,the stock price fluctuations are small,while when the credit rating is downgraded,the stock price fluctuations are large;Credit rating upgrade has a positive impact on stock prices,while credit rating downgrade has a negative impact on stock prices.Second,this study found that stock prices began to fluctuate before the announcement of the rating,because the market had anticipated the rating changes before the announcement of the rating and reflected the expected results in the stock price.Third,the greater the rating change level,the greater the impact on the stock market,the more volatile the stock price.Fourthly,when the rating changes of listed companies are made by foreign rating agencies and foreign-backed rating agencies,the volatility of their stock prices is stronger than that of local rating agencies,which can be mainly explained by the reputation effect theory.Fifth,when a listed company is a private enterprise,its credit rating changes have a greater impact on its stock price than those of state-owned or state-controlled enterprises.This is because the agency problems of state-owned or state-controlled enterprises are smaller than those of private enterprises,and they shoulder greater social responsibilities.Finally,this study helps market participants clarify the specific impact of credit rating on the stock market,helps investors make reasonable use of credit rating results to make investment decisions,guides the healthy development of credit rating agencies and enterprises,and provides empirical evidence for the focus of supervision by regulatory authorities.