rating, downgrade of rating, capital market, spreads cumulated spreads
Rating of a company listed in the capital market is a category which provides information on the credit of the given company. Especially rating of a distinguished rating agency, such as Moody‘s, is…více
Rating of a company listed in the capital market is a category which provides information on the credit of the given company. Especially rating of a distinguished rating agency, such as Moody‘s, is of significant information value. Moody‘s index provides rating evaluation of the debts of companies, cities, or countries. Many empirical studies have researched the effect of rating changes on the change in value of listed companies. Many of them proved that especially the downgrade of rating results in a substantial value drop of given companies at the time of announcement but also in the following days. On the other hand, improvement of rating usually results in only a milder effect on increase in value. The aim of this thesis is to analyze the effect of rating downgrade on value drop in two groups of companies listed on a stock exchange. The first one is a group of 30 randomly selected German companies over a period of 10 years. The other one is a group of 19 Czech and Slovak companies over the same time period. The basis for the analysis is formed by the so called spreads calculated in relation to the reference market model and by the additional cumulated spreads derived from them. The research has shown a different effect of rating downgrade on value drop in individual groups. In the German companies a significant company value drop has been confirmed in the case of rating downgrade at the time of the announcement. On the other hand, values of the Czech and Slovak companies decreased significantly less. By analyzing cumulated spreads we have found out that the value drop in the group of the German companies occurred several days before the announcement and also at the time of the announcement. In the following days the prices oscillated within a narrow zone. Value drop in the group of the Czech and Slovak companies started later, but it lasted longer after the announcement of rating downgrade. Logical explanation of this phenomenon would be the fact that the Czech and Slovak capital markets are not yet sufficiently developed and the participants respond to this fact with time delay. It is the decreasing trend of cumulative earnings in the Czech and Slovak companies several days before, but especially after the announcement of rating downgrade, that could be used in active portfolio management.