The Real Consequences of Market Segmentation

Credit Ratings and Acquisitions

“…Finally, at the lower end of the rating scale, our evidence is related to the literature that investigates how credit supply frictions affect corporate investment (see, for example, Lemmon and Roberts, 2010;Chernenko and Sunderam, 2012;Becker and Ivashina, 2014;Harford and Uysal, 2014).…”

“…However, the increased cost in debt associated with a downgrade is most salient around the investment grade threshold and is not always related to actual changes in credit quality. Chernenko and Sunderam (2012), for example, argue that there are discrete changes in the label from investment to non-investment grade, unrelated to continuous measures of default risk, and they report that these changes affect a firm's investment decisions. In related work, Chen, Lookman, Schurhoff, and Seppi (2014) find that when a series of non-investment grade bonds were mechanically relabeled investment grade as a result of a Lehman Brothers index redefinition, yields on these bonds declined by 21 basis points.…”

The Mitigating Effect of Bank Financing on Shareholder Value and Firm Policies Following Rating Downgrades

“…Kisgen (2009) argues that firms reduce leverage and debt issuance following rating downgrades in an attempt to preserve their minimum target rating. Chernenko and Sunderam (2012) find that firms rated just below the speculative-grade cutoff make lower investments compared to firms that remain just above the cutoff. Tang (2009) and Almeida, Cunha, Ferreira, and Restrepo (2017) document a reduction in leverage and investments even when downgrades are mechanical and not driven by changes in firm fundamentals.…”

The Causes and Economic Consequences of Patent Litigation

“…In capital markets, credit rating agencies and auditors are particularly important certification intermediaries, they contribute to enhance disclosure effectiveness by disclosing the information that is not available to the public but is incorporated in their credit ratings and audit opinions. Credit ratings represent the perceptions of investors (Chernenko and Sunderam, 2012;Baghai et al, 2014) including their current observations of company characteristics as well as their expectations with regard to future performance (Czarnitzki and Kraft, 2004). Audit opinions reflect the current financial condition of the company and their expectations with regard to its future well-being (Ajona et al, 2008;Herbohn and Ragunathan, 2008).…”