The Credit Rating Crisis and the Informational Content of Corporate Credit Ratings

There has been much scrutiny of the Credit Rating Agencies ’ (CRAs) flawed ratings of structured products in the build-up to the financial crisis. Our study examines whether the ‘credit rating crisis ’ altered the information effects of their traditional product, corporate bond ratings. Using an event study, we analyze the Credit Default Swap (CDS) market’s response to rating announcements by Moody’s between September 2004 and December 2009. Our results demonstrate that CDS price effects were considerably greater in the pre-crisis era, and document a possible spillover effect of reputational damage onto the bond rating services of the CRAs.