Abstract:
This study examines the impact of Credit Rating Announcements on Share Prices in
Colombo stock Exchange. This study uses the event study methodology to determine
the stock market reactions to credit rating announcements. The three windows as
pre-announcement window (-15,-1), announcement window (0, +1) and postannouncement
window (+2, +15) to determine how much contribute to CAAR value
from each window. Selected sample comprise with 20 companies representing bank
sector, leasing and finance sector, corporate sector and insurance sector. The data
are collected during the study period of April 2012 to June 2015 which is related to
the credit rating announcement of Fitch Ratings Lanka Ltd, ASPI and the daily prices.
The empirical results for rating changes show a negative CAAR for the preannouncement
window and post-announcement window and a positive CAAR for the
Announcement window. Almost all CAAR in the event windows are statistically
significant but market reaction of announcement window is higher compared to other
windows because of the CAAR recorded positive value. Empirical result related to
ASPI, can be identified, ASPI has a growth after the rating announcement. For
downgrades the empirical results show a negative CAR for the pre-announcement
window (-15, -1) and a positive CAR for the announcement window (0, +1) and postannouncement
window (+2, +15). For upgrades the CAR for positive for the preannouncement
window, they become negative for the announcement window and
shows negative reaction to the announcement.
