Paper titled ‘Has the Global Financial Crisis Changed the Market Response to Credit Ratings? Evidence from an Emerging Market’ is co-authored by Kaveri Krishnan, Ashok Thampy and Sankarshan Basu
01 February, 2019, Bengaluru: A paper titled ‘Has the Global Financial Crisis Changed the Market Response to Credit Ratings? Evidence from an Emerging Market’, co-authored by Kaveri Krishnan from IIM Visakhapatnam who is also an alumna of IIMB’s doctoral programme Fellow Programme in Management (FPM) with specialization in Finance & Accounting, Ashok Thampy, faculty from the Finance & Accounting area of IIMB, and Sankarshan Basu, faculty from the Finance & Accounting area of IIMB, has been accepted for publication in the Journal of Emerging Market Finance.
The paper analyses the differential market response to credit rating revisions in the pre- and post-global financial crisis period, using data from India. By reviewing the stock price reaction to the announcement of long-term rating changes during the period 1996-2015, the study finds evidence that the stock price reacted less to rating announcements after the Global Financial Crisis (GFC) of 2008. However, the difference in the Cumulative Abnormal Returns (CAR) before and after the GFC is not statistically significant.
The research question is on the impact of the GFC on the value addition by rating agencies in India and the differential market response to rating revisions in the pre- and post-global financial crisis period.
The authors use the event study methodology and compare the stock market reaction to rating changes before, during and after the GFC to see the impact of the crisis. The results show that the magnitude of reaction is lower in the post-crisis period compared to the pre-crisis period, which suggests that the incremental value addition by rating agencies has reduced after the crisis. The analysis of rating downgrades suggests that investors have become more sensitive to downgrades within the investment grade category post-crisis. The regulatory framework in India adopted by SEBI after the crisis is likely to have influenced the differential market response.
The Journal of Emerging Market Finance (JEMF) from SAGE Publishing is a peer-reviewed academic journal. It is published in association with the Institute for Financial Management and Research (IFMR). The journal covers theoretical and conceptual aspects relating to emerging financial markets, with emphasis on articles of practical significance.