This study investigates the information value of credit ratings by exploring the relationship between ratings and security price. Unlike previous studies, we concentrate on the major markets ex-Japan in Asia.

We begin with an investigation of rating reclassification as well as credit watch placement events by three leading international rating agencies. We show that markets with differing level of sophistication behave differently. Specifically, South Korea and Hong Kong are found to respond in a similar manner. Indonesia shows possible sign of information leakage. In the cases of Malaysia and Thailand, significant and positive equity price responses exist for upgrades, suggesting that upgrades are news-worthy in Asian market. However, we find that global raters fail to provide Taiwan market with new tradable information.

Further, we split the rating changes into anticipated and unanticipated events to account for the likely differential effects caused by market anticipation. We find evidence that market anticipation neutralizes the announcement effect.

We also examine whether the Asian financial crisis exerts impact on the magnitude of market reaction associated with rating news. For most markets in our analysis, the market reaction resulting from downgrades is muted during the crisis period.

We also investigate whether global raters and local raters impact market differently. The results are mixed. Local raters in Taiwan and South Korea seem more influential than their global peers, whereas it is not the case in Thailand.

In general, we find that there is information value in the announcements of rating revision and credit watch. The six Asian markets have heterogeneous responses to these announcements. Overall, our findings may help fund managers to better understand the announcement effects, and regulators to justify the incorporation of external credit ratings into the capital adequacy requirements.