Bond Rating Change Announcement and the Effect on Stock and Bond Return
Abstract: This research uses
event study method in order to examine the difference in abnormal returns for
stocks (average abnormal return) and bonds (spread yield). The sample used is
listed companies in Indonesian Stock Exchange for the period 2007-2011 which
issue corporate bonds and have bond rating changes issued by PT Pefindo. The
analyses of this research were performed using one sample t test, paired t
test, and multiple regression method. The results showed that: 1) There is no
significant difference on average abnormal stock returns and abnormal bond
returns before the announcement, during the announcement, and after the
announcement of bond rating changes, 2) Cumulative return of stock increases
following bond rating upgrades and decreases following bond rating downgrades
although both are insignificant. In contrast, the cumulative return for bonds
decreases significantly following bond rating upgrades and increases
insignificantly following bond rating downgrade, and 3) The magnitude of bond
rating changes gives no significant positive effect on average abnormal stock
returns and spread yield.
Author: Fathia Hapsari
Pireningtyas, Umanto Eko P.
Journal Code: jpadministrasinegaragg130043
