The Imprecision of Public Information and the Information Content of Credit Rating Changes

• In Event: Credit ratings

Abstract

We examine the role of the precision of the public information environment as a moderating factor in the informativeness of rating change announcements. Using a structural CDS pricing model, we extract a measure of uncertainty over firm asset value, which we use to characterize the ex-ante public information environment ahead of credit rating changes. We find that previously documented announcement returns are strongest in firms with highly imprecise public information environments ex-ante. Our results indicate the role of credit rating agencies as information intermediaries with access to private information is particularly valuable for firms with weak public information environments.

Authors

• Christine Cuny, New York University

• Ryan Ball, University of Michigan