Do Credit Watch Procedures Affect the Information Content of Sovereign Credit Rating Changes

Very few studies to date have considered the market reaction to the announcement of credit watch procedures and the impact of credit watch procedures upon the market reaction to credit rating changes. This paper addresses this gap in the literature by focusing on credit watch procedures at the sovereign level. Our primary finding is that re-ratings which follow watch procedures are neither more nor less informative, and we conclude therefore that the credit watch procedure does not impact upon the private information of credit rating agencies. In addition we provide evidence on the types of sovereign state for which credit watch procedures are invoked and of the relative activities at the sovereign level of three major rating agencies.