Not a one-trick pony: Price impact of rating agency information

Abstract

Prior literature on the informational role of credit rating agencies has largely focused on announcements by the rating agencies regarding rating actions. We take a tangent in this paper and examine the relevance of rating agencies’ other information disclosures beyond rating actions, such as credit opinions and sector comments. Credit opinions provide in-depth analyses of a firm’s financial performance and gives visibility into how a credit rating is derived. Analyzing the stock return decomposition among Moody’s information, earnings announcements, SEC filings, and earnings forecasts, we find that the additional disclosures by rating agencies, especially the credit opinions, are a source of useful and timely additional information to the market. Overall, our results indicate that stock market investors can do well to not only focus on credit rating actions, but also on credit opinions and other rating agency disclosures.