Doctoral Dissertations
Date of Award
12-1990
Degree Type
Dissertation
Degree Name
Doctor of Philosophy
Major
Business Administration
Major Professor
James M. Reeve
Committee Members
Hartwell C. Herring III, George C. Philippatos, James W. Wansley
Abstract
Prior research has shown an asymmetry in common stock price reactions to corporate bond rating changes--rating upgrades do not precipitate significant abnormal stock returns whereas significant negative abnormal stock returns are associated with rating downgrades. The principal objective of this study is to extend this previous research concerning the capital market impact of a bond rating change through the use of stakeholder theory. Using a market model, abnormal stock returns were computed for firms receiving bond rating changes from Standard and Poor's during the period 1982-1987. Stakeholder theory predicts that firms with varying amounts of net organization capital will have different common stock price reactions to bond rating changes. Based upon this theory, four empirical factors are developed to surrogate for Net Organization Capital (NOG). These factors were computed from accounting data, and portfolios were formed of firms with similar financial characteristics as determined by the factors. The abnormal stock return around the event date (press release date of the rating change) for each portfolio was computed and statistically tested for both contaminated and uncontaminated portfolios. In addition, empirical examinations were performed on the possible effect of Wall Street Journal publication on the stock price reaction to a rating change and on the possible change in beta during the test period. The results of the preliminary tests in this research support the findings of prior research concerning the asymmetric stock price reactions to bond rating changes. Also, the statistical tests on one of the empirical factors (Net Intangible Assets at current cost) developed as a surrogate for Net Organization Capital were successful in isolating significant positive abnormal returns associated with rating upgrades. The tests for the three additional NOG surrogates did not find similar results. The lack of statistically significant results for these three factors may be due in part to a weak theoretical linkage between the factors and stakeholder theory, and empirical calculation difficulties for the factors used as surrogates.
Recommended Citation
Steadman, Mark Edward, "The common stock price effects of bond rating changes : an examination of asymmetric market reactions using stakeholder theory. " PhD diss., University of Tennessee, 1990.
https://trace.tennessee.edu/utk_graddiss/11508