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“Too big to downgrade”: the response of financial analysts to bond downgrades of money center banks

Robert Schweitzer (Professor of Finance, University of Delaware)
Samuel H. Szewczyk (Associate Professor of Finance, Drexel University)
Raj Varma (Associate Professor of Finance, University of Delaware)

Managerial Finance

ISSN: 0307-4358

Article publication date: 1 February 2000

Abstract

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.

Keywords

Citation

Schweitzer, R., Szewczyk, S.H. and Varma, R. (2000), "“Too big to downgrade”: the response of financial analysts to bond downgrades of money center banks", Managerial Finance, Vol. 26 No. 2, pp. 31-41. https://doi.org/10.1108/03074350010766486

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MCB UP Ltd

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