Abstract
We document a significant decline in the likelihood of firm-specific stock price crashes after the announcement of credit rating downgrades in 69 countries. This finding supports the argument that credit rating agencies (CRAs) contribute to the disseminating of negative information in the equity market by issuing rating downgrades. Our results remain robust after various tests for endogeneity. Further analysis shows that the negative relationship between rating downgrades and stock price crashes is amplified by information opacity. These findings shed light on the role of CRAs in promoting the flow of negative information into the equity market and enhancing its stability.
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