Abstract
Research background: Sovereign credit ratings play an important role in determining any country?s access to the international debt market. During the global financial crisis and the European debt crisis, credit rating agencies were harshly criticized for the timing of their announcements regarding ratings downgrades and the ranges of those downgrades. Therefore, it is worth considering whether the sovereign credit rating is still a useful benchmark for investors.
 Purpose of the article: This article examines whether credit rating agencies still provide financial markets with new information about the solvency of governments in Emerging Europe countries. In addition, it describes the differences in the effect of particular types of rating events on financial markets and the impact of individual agencies on the market situation. Our study also focuses on evaluating these occurrences at different stages of the business cycle.
 Methods: This article uses data about ratings events that took place between 2008 and 2018 in 17 Emerging Europe economies. We took into consideration positive, neutral, and negative events related to ratings changes and the outlooks reported by Fitch Ratings, Moody?s, and Standard & Poor?s. We used a methodology based on event studies. In addition, we performed Wilcoxon signed-ranks test and used a logit model to determine the usefulness of cumulative adjusted credit default swap (CDS) spread changes in predicting the direction of ratings changes.
 Findings & Value added: Our research provides evidence that the CDS market reflects information regarding government issuers up to three months before ratings downgrades are announced. Information reported to the market by ratings agencies is only relevant in the short timeframe surrounding ratings downgrades and upgrades. However, positive credit rating changes convey more information to the market. We also found strong evidence that, in the post-crisis period, credit ratings provide markets with less information.
Highlights
A sovereign credit rating is a measure of a country‘s solvency given by credit rating agencies (CRAs) and is based on quantitative and qualitative factors
We took into consideration the positive, neutral, and negative events related to rating change, and outlook, reported by the three main CRAs: Fitch, Moody’s, and Standard & Poor‘s (S&P)
The credit default swap (CDS) market is ahead of rating events. This especially applies to credit rating downgrades which are predicted earlier by changes to the CDS spread
Summary
A sovereign credit rating is a measure of a country‘s solvency given by credit rating agencies (CRAs) and is based on quantitative and qualitative factors. During the global financial crisis and the European debt crisis, CRAs met with harsh criticism, primarily related to the timing of their announcements and the range of their ratings downgrades (Alsakka & Ap Gwilym, 2013; Dziawgo, 2013; Haspolat, 2015; Manso, 2013). It is, worth considering whether the sovereign credit rating is still useful to investors as a source of reliable and current information on a country’s solvency
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