Asymmetry of the Announcement Effects of Credit Rating Adjustments in the Stock Exchange of Thailand: Does Industry Group Matter?

Authors

ผศ.ดร.ณัฐวุฒิ เจนวิทยาโรจน์, ดร.Nattawoot Koowattanatianchai, ดร.Apichai Apirattanapimolchai

Published

ประชุมวิชาการระดับนานาชาติ “NIDA International Business Conference 2019 – Transforming Business to the Future”

Abstract

We examine the impact of corporate bond credit rating announcements on abnormal returns
of listed companies in several industrial sectors on the Stock Exchange of Thailand. The
event study methodology developed by Seiler (2004) is chosen to test the significance of
abnormal returns of sampled companies that experience rating events. Results of the study
show that in general, Thai stocks response negatively to the announcement of credit rating
adjustments. The rebound of stock prices occurs after the official announcement. Similar
results emerge when we consider only rating downgrades. In contrast, Thai firms do not
experience significant abnormal returns if their rating is improved. This asymmetry is
consistent with previous research. However, when we consider each industrial sector
separately, the same phenomenon is not observed. Results of the study show that credit rating
changes do not lead to significant abnormal returns in real estate & construction sectors. This
phenomenon prevails both before and after the time of credit rating changes. It appears that in
the case of the real estate & construction sector, new information received from the bond
market will not be passed to the equity market. This insignificance is not consistent with
previous research. We observe some interesting results when we look at patterns of the
cumulative abnormal returns during the event window. As soon as credit rating upgrades
were announced, our sampled stocks experience negative abnormal returns and these negative
abnormal returns worsen throughout the event window. We theorize that this phenomenon
occurs because investors sell these stocks to realize profits following the announcement of
positive news. On the contrary, positive abnormal returns are observed after the
announcement of credit rating downgrades and these positive returns improve throughout the
event window. We theorize that investors in the real estate & construction sector of Thailand
employ a contrarian investing strategy, by shifting their capital from the bond market that has
just received bad news to the stock market. A redistribution of capital from bond market to
stock market causes an increase of stock prices.

Asymmetry of the Announcement Effects of Credit Rating Adjustments in the Stock Exchange of Thailand: Does Industry Group Matter?. สถาบันบัณฑิตพัฒนบริหารศาสตร์ , ประชุมวิชาการระดับนานาชาติ “NIDA International Business Conference 2019 – Transforming Business to the Future” (293-306).