The (un)informative value of credit rating announcements in small markets

• Small economies characteristics affect credit rating information value.
• This work, using Israeli data, reveals new results compared to prior literature.
• Bonds and stock prices do not respond to upgrades and negative reviews.
• Markets response to downgrades, yet, this is followed by price correction usually.
• It appears that rating announcements in Israel have a marginal information value.

This work examines the information value of local Israeli credit rating announcements. This matter is also important to other small markets, in which a debt issuer may take advantage of a “rating shopping” process or choose to avoid a rating procedure altogether, because the agencies do not carry out unsolicited rating. We analyze the bond and equity markets response to various rating announcements at different time periods. We find that except for downgrades in 2008–2009 the rating announcements have no information value. It seems that generally the market internalizes most of the information prior to the rating announcements.