Intra-industry transfer effects of credit risk news: Rated versus unrated rivals

We examine the information transfer effect of bond-rating adjustments on industry rivals. Our research is based on the premise that the transfer effect is influenced by the rated status of rivals, i.e., whether the rival's debt is rated by any credit rating agency. The results reveal that credit rating adjustments induce different/stronger effects. First, the intraindustry transfer effects (on returns and risk) are stronger on rated rivals than on unrated rivals. Second, the credit risk news produces lower co-movements between the returns of the two types of rivals. Third, the differential effect is stronger in the manufacturing industry, in the riskiest industries and in the industries with the lowest competition levels. Interestingly, our results suggest that credit rating news is more relevant for rivals with access to the public debt market (such as re-rated firms) than for rivals that focus on other sources of funding. (C) 2018 Elsevier Ltd. All rights reserved.