Abstract
Moody's (2011) withdraws credit ratings when a debt issuer files for bankruptcy, does not provide sufficient information to the rating agency, or is merged with another firm. When ratings are withdrawn, there is less information available regarding an issuer's credit quality. We examine the stock and bond price reactions following announcements of Moody's credit rating withdrawals and find that the announcements of rating withdrawals result in significant and negative stock and bond price reactions for issuers with withdrawn ratings. Issuers that continue to have an S&P or Fitch's rating following a Moody's rating withdrawal experience a smaller stock price decrease than those without credit ratings from any rating agency. Moreover, we find that liquidity risk increases significantly around rating withdrawal announcements because we observe a sharp decrease in bond trading volume and frequency.
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