Abstract
This research investigates the information conveyed by corporate bond rating changes relating to a firm's future earnings and dividends. Consistent with previous findings,
announcements of bond rating downgrades met with negative abnormal stock price returns, while no abnormal stock price returns were observed around announcements of rating upgrades. This change in stock price, at the announcement of a downgrade, suggests that investors construe rating changes as providing information regarding firm value. Contrary with expectations, bond rating downgrades did not appear to
signal a decline in future earnings; rather, earnings tended to increase following a rating downgrade. However, firms with bond rating downgrades decrease subsequent dividend payments, although investors did not revise their forecasts of future dividends at the time of the bond rating change.