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Ratings, Commercial Paper, and Equity Returns
Author(s) -
NAYAR NANDKUMAR,
ROZEFF MICHAEL S.
Publication year - 1994
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1994.tb02460.x
Subject(s) - equity (law) , stock (firearms) , business , sort , credit rating , stock price , monetary economics , economics , financial economics , finance , engineering , series (stratigraphy) , biology , political science , computer science , law , mechanical engineering , paleontology , information retrieval
We present the first evidence that initial ratings of commercial paper influence common stock returns. Highly‐rated industrial issues of commercial paper, unaccompanied by bank letters of credit, are associated with significantly positive abnormal returns; lower‐rated issues are not. The stock price effects of changes in commercial paper ratings also demonstrate the relevance of ratings to the financing of firms. Rating downgrades, especially those that imply an exit from the commercial paper market, produce significantly negative abnormal returns; upgrades have no effects. Initial commercial paper ratings and subsequent reratings appear to help investors sort firms by their future prospects.