Credit Rating Changes, Information Acquisition and Stock Price Informativeness
نویسندگان
چکیده
How do rating changes affect investor behavior and price informativeness? In a model with endogenous information acquisition and investors with limited attention, we show that the returns to information and the informativeness of the price system increase after a downgrade, but should not experience a significant change after an upgrade. Using a sample of U.S. publicly traded firms that experienced a change in the rating between 2000 and 2013, we find empirical support for our predictions. Unlike previous studies, we show that rating changes do not only affect price levels but investors’ incentives to acquire and trade on information.
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