The Role Of Bank Quality In Mitigating The Market Reaction To Adverse Rating Agency Announcements Concerning Bank Loans
Does the quality of a lending bank influence the market reaction of downside information issued by rating agencies? The answer is yes. It is found that the firms which are certified and monitored by the high quality banks are associated with less negative market reactions toward bank loan rating announcements of placement on CreditWatch with negative implication, and also announcements of downgrades. These results indicate that the high quality lending banks can sustain investors' confidence toward the borrowers when they have deteriorated news. This is due to investors' beliefs that high quality lending banks access inside information not available to outsiders.