Title: The effect of credit rating announcements on stock returns of banks in India

Authors: Silky Vigg Kushwah; C.A. Manav Vigg

Addresses: New Delhi Institute of Management, 60 & 50(B&C), Tughlakabad Institutional Area, New Delhi, India ' Amity Business School, Amity University, Opposite Airport, Maharajpura, Gwalior, Madhya Pradesh 474005, India

Abstract: 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.

Keywords: event study; market efficiency; average abnormal return; AAR; cumulative abnormal return; CAR; banks; credit rating; India.

DOI: 10.1504/AAJFA.2023.128619

Afro-Asian Journal of Finance and Accounting, 2023 Vol.13 No.1, pp.41 - 53

Received: 05 Apr 2020
Accepted: 22 Oct 2020
Published online: 31 Jan 2023 *