New Evidence on The Information Content of Bond Downgrade Announcements in the Indonesian Stock Exchange  

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Jenis: Article from Journal - ilmiah nasional - terakreditasi DIKTI
Dalam koleksi: Journal of Economics, Business, & Accountancy: ventura vol. 11 no. 3 (Dec. 2008), page 287-298.
Topik: Bond Downgrade; Stock Market Reaction; Information Content

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Perpustakaan Pusat (Semanggi) Nomor Panggil: VV5.6 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Bond ratings reflect the quality of issuers in term of their ability to repay any obligation that comes due. Bond grade changes may indicate some changes in the current and future financial condition of issuers that influence their ability to meet their obligation and risks. If bond rating change announcements reveal private information (information that has been unknown by public), then the announcements should be reflected in the stock prices of effected firms. In other words, bond downgrades will decrease the stock prices of downgrades firms. However, if the announcements reveal publicly available then the announcements will have no information content and not be responded by the market. The objective of this study is to examine the information content of bond downgrades. Using a sample of bond downgrade announcements of firms listed in the Indonesian Stock Exchange from 2001-2005, we find that there are no significant negative stock market reactions to bond downgrades. This result may suggest that the information in bond downgrade announcements do not reveal new information to stock market investors. In addition, a detail analysis of data shows that the degree of bond rating changes is quite low and the changes are within investment grades. These two factors may lead to no significant negative market reaction to bond downgrades.

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