The information content of Australian credit ratings: A comparison between subscription and non-subscription-based credit rating agencies

We classify credit rating agencies into two groups: subscribing and non-subscribing. Investors can access (non-subscribing) credit reports released to the public for no charge, or investors can subscribe to the fee-paying (subscribing) credit reports from agencies. Our results suggest that the information content of non-subscribing credit agencies is very low, whereas positive excess returns exist up to eight months after the announcement of credit upgrades from the subscription-only agencies. We support the hypothesis proposed in Grossman and Stiglitz [Grossman, S.J., Stiglitz, J.E., 1976. Information and competitive price systems. The American Economic Review 66, 246-253; Grossman, S.J., Stiglitz, J.E., 1980. On the impossibility of informationally efficient markets. The American Economic Review 70, 393-408]. Investors who spend resources on information acquisition should receive compensation for their information advantage, or there would be no incentive for such activity.