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Big is beautiful: the information content of bank rating changes

Christian Fieberg (Department of Finance, University of Bremen, Bremen, Germany)
Finn Marten Körner (FSI Assurance Department, Deloitte, Düsseldorf, Germany)
Jörg Prokop (Department of Business Administration, Economics and Law, University of Oldenburg, Oldenburg, Germany)
Armin Varmaz (Department of Finance, School of International Business, Bremen, Germany)

Journal of Risk Finance

ISSN: 1526-5943

Article publication date: 18 May 2015




The purpose of this paper is to study the information content of about 3,300 global bank rating changes before and after the Lehman bankruptcy in September 2008 to assess if differences in stock market reactions for small and big banks emerge.


The analysis of the stock market reactions of rating changes (upgrades and downgrades) and bank’s size (small and big) is conducted by an event study approach.


The authors find that while upgrades are not associated with significant abnormal bank stock returns, downgrades have a significantly negative effect. This result holds for both small and big banks, while negative abnormal returns are considerably stronger for the former. For small banks, the authors observe an increase in negative cumulative abnormal returns post-Lehman. The lack of a reaction to large banks’ rating downgrades in the narrow [−1,+1] event window indicates that their stock prices may, to some extent, be insulated from negative rating information even post-Lehman, which the authors attribute to an implicit “too big to fail” subsidy anticipated by equity investors.


This paper provides insights to the differences in the information content of changes in small and big banks’ credit rating on stock returns that is unrelated to the well-known size effect. Compared to small banks, big banks seem to some extent be insulated from negative rating changes even post-Lehman – contributing to the on-going too big to fail debate.



Parts of this research were conducted while Mr Prokop was a visiting scholar at the Collaborative Research Center 649 “Economic Risk”, Humboldt-University Berlin, and at the University of Luxembourg. He is grateful for the support provided there. Moreover, the authors would like to thank participants at the 2014 International Finance and Banking Society (IFABS) conference, the 2014 British Accounting and Finance Association (BAFA) conference and the 2014 ZenTra workshop on “coping with risk in transnational financial markets” for their comments and suggestions. This paper is part of the Center for Transnational Studies’ (ZenTra) research programme on credit rating agencies, and the authors gratefully acknowledge funding provided in this context by “Stiftung Bremer Wertpapierbörse”. Any views expressed in this paper are solely those of the authors.


Fieberg, C., Körner, F.M., Prokop, J. and Varmaz, A. (2015), "Big is beautiful: the information content of bank rating changes", Journal of Risk Finance, Vol. 16 No. 3, pp. 233-252.



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