The impact of rating changes in Australian financial markets

Credit ratings have only a limited role in Australian financial regulation, so the effects of rating changes on financial prices can be observed largely free from regulatory effects. We find that bond and stock prices move in the 'expected' direction following both positive and negative rating announcements, although the movements are small. Announcement effects are larger for small firms, for downgrades from investment to speculative grade, and where agencies have not previously indicated the rating is under review. Overall, the results suggest that agencies are not generally viewed as consistently having access to important information that is not already in the public domain.