The information value of bond ratings

Doron Kliger, Oded Sarig

Research output: Contribution to journalArticlepeer-review


We test whether bond ratings contain pricing-relevant information by examining security price reactions to Moody's refinement of its rating system, which was not accompanied by any fundamental change in issuers' risks, was not preceded by any announcement, and was carried simultaneously for all bonds. We find that rating information does not affect firm value, but that debt value increases (decreases) and equity value falls (rises) when Moody's announces better-(worse-) than-expected ratings. We also find that when Moody's announces better-(worse-) than-expected ratings, the volatilities implied by prices of options on the fine-rated issuers' shares decline (rise).

Original languageEnglish
Pages (from-to)2879-2902
Number of pages24
JournalJournal of Finance
Issue number6
StatePublished - Dec 2000
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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