Cross-Sectional Variation in Stock Price Reaction to Bond Rating Changes: Evidence from India (Notes)

1.    In case of intangibles, all companies which had no intangible assets were put in the low intangibles category irrespective of where they fell in equal division of companies during classification.
2.    This study differs from the work by Goh and Ederington, 1999 in respect of post – event window. While the above mentioned researchers used a 2 day post – event window, this study uses a longer window consisting of 21 days. This has been done due to the reason that impact of rating change is usually lagged and is spread over a longer period of time. Thus, a longer window is used to understand how the impact of bond rating change continues over time.
3.    The pre – event window used by Goh and Ederington (1999) consisted of 45 days. However, in this study the window used consists of 20 days which is consistent with the analysis done in the previous sections.
4.    For calculating NUMGRADE, ICRA as well as CRISIL’s rating scale is converted into numerical form with the highest rating (CRISIL AAA of CRISIL and [ICRA]AAA of ICRA) being given a score of 20, and lowest rating (CRISIL D of CRISIL and [ICRA]D of ICRA)being given a score of 1. The approach of converting the scale of rating change has been followed by a number of researchers like Barron, Clare and Thomas (1997); Goh and Ederington (1999) and Avramov et al. (2009).
5.    In September 2008 Lehmann Brothers Holdings Inc. filed for bankruptcy. This was followed by the fall of several other financial corporations. Thus, after this period the global financial crisis became explicit. Hence the period after September, 2008 has been considered as the period of downturn in the business cycle.
6.    Fama and French (1995) show that low P/B firms exhibit weaker sales and earnings growth rate historically viz a viz high P/B firms and hence can be classified as fundamentally distressed.
7.    The measurement of trading volume is in line with Lee and Swaminathan (2000).

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