Footnote:
In: European Finance Association Annual Meeting, 2011
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 7, 2017 erstellt
Description:
Utilizing an influential event, the 2005 Lehman index rule change, we examined the role of multiple bond ratings in corporate hedging. We find that U.S. firms exhibit a sharp increase in their demand for a third Fitch rating after the Lehman event, with the pattern particularly significant for investment-grade bonds and for those bonds near a rating downgrade. In fact, firms that acquire a third rating are more likely to experience a downgrade in their existing two ratings in the future. Furthermore, open-ended mutual funds increase their holdings of three-rating bonds after the event, and institutional investors trade three-rating bonds more actively. These findings show that firms use multiple ratings to maintain stable rating status, which helps both firms and investors avoid the costly consequences of rating downgrades