Mergers in the bond rating industry: does rating provider matter?

I examine whether investors favour bond ratings from established global agencies by analyzing the market response to Standard and Poor's (S&P) acquisition of the Canadian Bond Rating Service (CBRS). As a result of the acquisition, CBRS ratings were completely eliminated and replaced with ratings from S&P. While little reaction was apparent for bonds, the stocks of firms with CBRS ratings responded positively to the acquisition announcement. Small firms and those with little institutional ownership experienced the greatest benefit. The findings suggest that ratings from S&P may increase the exposure of foreign firms to international investors.