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Essay / Research Paper Abstract
This 6 page paper examines the way that a change in a listed firm’s credit rating from a major credit rating agency, such as Standard & Poor or Moody’s, may impact on the stock prices, considering both upgrades and down grades and the reaction of the equity markets. The bibliography cites 12 sources.
Page Count:
6 pages (~225 words per page)
File: TS14_TEcreditshare.rtf
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Unformatted sample text from the term paper:
influences on share prices, theories such as Efficient Market Hypothesis (EMH) where different sources of information are assessed as having a potential influence in the different weak, semi strong and
strong forms. One potential for of information, which reaches the public domain is the credit rating of the firm. Theoretically, if the if the information is seen as significant to
investors then any changes in credit ratings should have an impact on the markets, reflecting in the price of the equities. However, as seen with the mixed evidence
on different version of EMH, markets do not always react in the manner expected, meaning that the logical assumption that information about the creditworthiness of a firm, as such information
regarding the underlying condition of the firm may not necessarily reflect in the equity price. The aim of this paper is to assess whether or not changes in credit ratings
will impact on the stock prices. A credit rating is able to provide a summary, but subjective measure of the assessed credit
worthiness of a firm (Creighton et al, 2007). Firms are assessed by credit ratings agencies, often paying for that rating, even though the measures are not a precise measure of
the risk of default that a firm presents, but they are used as a standardised measure against which relative risk may be measured (Creighton et al, 2007). Different credit ratings
agencies may have different processes that lead to an assessment, but it is fair to assume that the differences between the major credit ratings agencies are generally understood by the
market, for example, Standard and Poors best rating is AAA corresponds to Aaa Moodys best credit rating (Hite and Warga, 1997). The
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