The impact of credit rating announcements on corporate CDS markets—Are intra-industry effects observable?

• Significant asymmetric market reactions around downgrades and upgrades for event firms.
• Event firm reactions vary across industries.
• Rating events have industry-wide effects.
• Level of rating change, comprehensive credit rating of competitors, and financial leverage determine the spillover effect on competitors.

This study examines the impact of S&P rating events on the credit default swap (CDS) spread of firms and the spillover effect on competitors for the period 2004–2011. We find that both credit downgrades and upgrades have an impact on the CDS spread of event and non-event firms on the event date. Downgrades are more anticipated than upgrades. Overall, the market reaction differs in extent and significance across industries and has been more pronounced since the beginning of the 2007 financial crisis.