The effect of credit rating announcements on stock returns of banks in India
Silky Vigg Kushwah; C.A. Manav Vigg
Afro-Asian J. of Finance and Accounting, Vol. 13, No. 1 (2023) pp. 41 - 53
This study investigates the impact of credit rating changes on the stock returns of the commercial banks of India. The study reports that the bank returns are significantly negative during the pre-downgrade announcement period. Interestingly, the returns are negative again on the downgrade announcement day. Conversely, the bank returns turn insignificantly positive during the post downgrade announcement period. The study concludes that downgrades do not have a negative wealth impact on banks' stock returns after the announcement by credit rating agencies. Eventually, it results in early awareness of investors regarding the financial position of the banks, and it does not come as a shock to them. The study has a direct implication on short-term investors who rely highly on the announcements by rating agencies to make buy/sell decisions. Moreover, the study will also help the regulators and banks better understand the impact of such rating changes on stock returns.