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This paper aims to assess the consequences of credit risk downgrades on credit default swaps (hereafter CDS) written on financial companies from two different perspectives, namely the overall stress level observed on the market and the rating agency performing the downgrade.

The authors' study relies on several wavelet analyses performed on different subsamples of data coming from the iTraxx index, the downgrade dates ranging between October 28, 2005 and February 3, 2015. This study highlights that both the overall stress level and the rating agency taking actions do have an influence on how market players will react.

The authors' study points out that market players will anticipate and react to downgrades in different ways depending on the level of stress. Feedback effects are observed after the downgrade only during periods of tension. From a rating agency point of view, the authors' study shows that the market share as well as the reputation of each agency have an influence on the aftermaths of a downgrade.

To the authors' knowledge, this paper is the first one relying on wavelet to analyse the consequences of a downgrade on CDS market. The use of this methodology allows to capture the multiple impacts of a downgrade through time and, therefore, to analyse the dynamics triggered on the market by a negative rating event. Moreover, the study of the downgrades' repercussions of each of the main rating agencies underlines a psychological dimension in the way market players react to a downgrade.

We study the information content of issuer credit rating changes announced by a group of six Chinese credit rating agencies. We conduct an event study, and we use multivariate regression analyses to identify factors driving abnormal stock returns. Our results confirm prior findings for Western countries that downgrades are associated with significant negative abnormal returns. However, upgrades and positive or negative rating outlooks do not seem to have information content. While we cannot find differences in information content conditional on which rating agency issues the downgrade, we find that abnormal returns may vary with the target firm’s industry. In addition, the magnitude of stock price reactions to rating downgrades seems to be related to the business cycle to some extent. With respect to the role of the industry in explaining the information content of rating changes, our results may be biased due to small sample size. Nevertheless, they illustrate that the role the industry plays in explaining investor behavior may deserve special attention in future research. Our findings imply that new rating information seems to be processed quickly in the Chinese stock market, and that market reactions to rating signals are largely in line with what has been observed for Western stock markets. Both observations lend credibility to observable stock prices. The chapter sheds new light on the relevance of Chinese credit rating agencies from an equity investor’s perspective and confirms similarities between the Chinese and Western stock markets with respect to the way rating signals are processed by investors.

This paper aims to examine whether firms engage in earnings management immediately after experiencing a downgrade in their credit rating.

This paper uses fixed-effects regression models to examine real- and accrual-based earnings management after firms experience a downgrade in their credit rating.

Inconsistent with prior studies where firms are reported to opportunistically increase their earnings prior to a credit rating event, this paper finds that firms use income-decreasing earnings management after their ratings are downgraded. This paper also finds that firms downgraded to below the investment grade rating not only significantly reduce both abnormal cash flows and discretionary accruals but also report larger asset impairments, suggesting that these firms exploit the rating downgrade to employ a big bath accounting.

The results of this paper have practical implications for investors fixating on firm earnings after a credit rating downgrade, for shareholders of downgraded firms and regulators such as credit rating agencies.

The findings of this study contribute to the thin literature on earnings management after changes in credit rating by shedding lights on earnings management after a rating downgrade and complement the literature on the accounting choice of financially distressed firms. The empirical evidence documented in this study suggests that the occurrence of income-decreasing earnings management is not limited to only after a sovereign country rating downgrade as documented in a prior study but also occurs after a rating downgrade not associated with this event.

Despite service downgrades' undisputed practical relevance, service downgrades (e.g. customers shifting the price tier downward) have received surprisingly little attention from scholars. Previous studies have focussed on either the public policy issue of tiered pricing or optimal pricing by the service provider. Only a few studies have examined why customers shift across different price tiers and how such activities indicate their future behaviour.

Based on customer data collected from a major telecommunications company, the authors use a logistic regression model to investigate how two service modification levers (i.e. transaction- and relationship-level factors) influence the likelihood of service downgrade. The authors apply a survival model to study how service downgrades affect customer churn.

Transaction-level factors such as service usage (e.g. the frequency and recency of underuse experiences) are positively associated with the likelihood of a downgrade. However, relationship-level factors (e.g. relationship duration and customer status) are negatively associated with the likelihood of downgrades. Customers engaging in downgrades are more likely to churn in the future.

The authors focus on downgrade behaviour, which can be perceived as customers' choice to move down the price tier, which likely ruins the service provider's performance. The authors conceptualise two fundamental driving forces behind a service downgrade: the misfits between the actual usage and the service plan chosen and the deteriorating relationships. The authors' empirical findings on the factors influencing downgrades provide insights for service providers seeking to prevent such behaviour.

The paper aims to investigate corporate risk-taking following changes in firms' credit ratings (CR) and the mechanisms the firms use in implementing the risk-taking.

The paper employs fixed-effect regression models to examine risk-taking behaviour after firms experience changes in CR after their ratings are downgraded to the lower edge of the investment grade rating (i.e. BBB-) and after their CRs are downgraded below the investment rating.

The paper finds that, whilst in general, changes in CR are negatively associated with post-event risk-taking, firms downgraded to BBB- do not increase their risk-taking. Only when firms are rated below this grade, firms significantly increase their risk-taking, suggesting that the association between downgrades in CR and firm risk-taking following the event is not linear. Further analysis suggests that these downgraded firms do not increase research and development (R&D) expenses or capital expenditures but employ long-term debt as their risk-taking mechanism.

The findings of the paper have practical implications for investors considering investing in downgraded-rating firms to shareholders of such firms and especially to those overseeing the firms' risk-taking policies.

The study fills the gap in the literature by providing empirical evidence on corporate risk-taking after changes in CR and also contributes to the optimal debt-maturity choice literature.

Prior research (e.g Holthausen and Leftwich, 1986) has found that firms’ stock prices react negatively to announcements of downgrades of their bond ratings. Our study examines whether stock prices react negatively to downgrades because the rating agency conveys adverse private information about the firm through the downgrade (the information provision hypothesis) and/or because the downgrade imposes significant costs on the firm (the cost imposition hypothesis). The results of a cross‐sectional model support both hypotheses. Specifically, we find that firms’ stock returns are positively related with their institutional stockholdings and negatively related with their debt‐to‐equity ratios. This suggests that the rating agency is an important information provider for firms with low institutional stockholdings, and that the downgrades significantly impact firms’ borrowing costs.

Previous literature suggests that people might purchase symbolic products to signal their social identity. However, in the organizational context, subordinates as customers might choose products with less brand prestige than what they want and can afford, just to make sure their choices are below the invisible “red-line” set by the brands of their supervisors. The authors term the phenomenon as “boss ceiling effect,” and term the behavior that people often downgrade their original choice to make sure the brand prestige is lower than that of the product owned by their boss as “downgrading behavior,” which have not been explored and well explained by existing literature so far. The paper aims to discuss this issue.

The authors conduct qualitative study to explore the existence of boss ceiling effect and providing possible influential factors of brand downgrading attitude. The quantitative study empirically examines the relationships among undesired self, perceived risk, organizational culture balance, and downgrading attitude and intension.

The authors find that undesired self-congruence and perceived risk are positively related to the downgrading attitude. In addition, the culture balance directly affects the brand downgrading attitude negatively and also moderates the relationship between undesired self-congruence and downgrading attitude positively and the relationship between perceived risk and downgrading attitude negatively.

The authors contribute to both organizational culture research and symbolic consumption research by considering symbolic consumption behavior in organization context. It is of great practical implications for marketers of symbolic consumption to understand the downgrading behavior.

The purpose of this paper is to investigate how customers’ upgrading/downgrading _(t−1) behavior may be predictive of future spending. Further, this paper also investigates how customers’ post-consumption evaluations of upgrades and downgrades [satisfaction_(t−1) and perceived value_(t−1)] may moderate the relationship between upgrades/downgrades and future spending.

The predictions are tested using a large longitudinal data set of river cruise purchases (N = 48,103) and largely replicated using a data set of zoo membership purchases (N = 2,469).

Satisfaction_(t−1) mitigates the positive relationship between prior upgrades_(t−1) and future spending_(t). In contrast, perceived value_(t−1) magnifies the positive relationship between prior upgrades_(t−1) and future spending_(t). However, no positively moderating effects are observed to alleviate the negative relationship between prior downgrades_(t−1) and future spending_(t).

This research suggests that managers should work hard early in customer–firm relationships because of an asymmetric difficultly in altering the trajectory of an established relationship. Specifically, relationships that are trending downward (as consecutive downgrades would suggest) are difficult to repair – a mechanism to alter this trajectory is not observed. In contrast, relationships that are trending upward (as consecutive upgrades would suggest) can be improved with high perceived value evaluations but also degraded with high satisfaction evaluations.

This research should recast marketers’ understanding of the value of customers’ upgrade and downgrade decisions. Instead of using customers’ upgrade or downgrade decisions as the dependent variable, or final outcome in buyer behavior, this study shows how the accumulation of prior upgrades and prior downgrades, over time, acts as a bellwether of the customer–firm relationship. Further, to the best of the authors’ knowledge, this study is the first to connect these upgrade/downgrade decisions to customers’ evaluations of those purchases to understand how individual purchases can impact the overall customer–firm relationship.

This study aims to examine the information transfer effects of customers’ credit rating downgrades on supplier firms.

In this study, the authors use suppliers’ cumulative abnormal returns around customers’ credit rating downgrade events to identify how shocks to customer credit impact supplier equity prices. The authors also incorporate ordinary least squares and weighted least squares regressions regression analysis of the determinants of supplier market response to customer downgrades.

The authors find that customer credit rating downgrades present significant negative shocks to the stock prices of supplier firms. Moreover, the authors show that the information transfer effects are determined by both firm- and industry-level factors, including the market anticipation of downgrades, the strength of the customer–supplier linkage, the industry rivals’ reactions to the downgrades and investor attention. The authors also find that the likelihood that a supplier will receive a rating downgrade is significantly higher following its primary customer firm’s downgrade.

To the best of the authors’ knowledge, this paper is the first to explore the information transfer effects of credit rating downgrades on primary stakeholders within the supply chain. The authors document that customer–supplier networks have valuable implications for the spillover effect across debt and equity holders. Information about customers’ financial stress is incorporated into suppliers’ equity prices outside of the context of customer bankruptcy.

Outlines previous research on the effects of bond rating changes on the share prices of US banks, noting opposing views on whether they contain new information. Examines revisions in analysts’ earnings forecasts for downgraded and non‐downgraded banks (separating regional banks from large money centres) to test the value of this information using 1981‐1991 data on 14 downgrades of money centre banks; and explains the methodology used. Shows that downgrades affected forecasts for the downgraded banks and other money centre banks but not for regional banks. Concludes that bond rating agencies assist market discipline by providing useful information on risk.