This PhD dissertation focuses on the bond rating changes assigned by S&P Corporation and Moody’s Corporation in the UK between 1997 and 2006. The main purpose of this research is to determine whether there is significant support for the private information hypothesis based on evidence of bond rating changes announcements and their impact drawn from this period. More specifically, the event study was implemented in order to examine the abnormal share performance during this period in the UK. There are five studies presented in this thesis. Based on a standardised cross-sectional parametric t-test, as proposed by Boehmer, Musumeci and Poulsen (1991), on 299 corporate bond rating changes announced by S&P and Moody’s, the first study shows that, based on sub-period analysis, no abnormal share return is detected in the UK. However, the rating downgrade announcements show significant negative market reaction. The second study examines the performance of the nonparametric test and parametric t-test in detecting any abnormal share performance during the period of the UK bond rating changes announcements. The nonparametric rank test was undertaken because of concern with the problem of non-normality and the unstable variance during the event. The results show that, based on downgrade announcements, the standardised cross-sectional parametric t-test outperforms the nonparametric tests that are based on the work of Corrado (1989) and Corrado and Truong (2008). Hence, the standardised cross-sectional parametric t-test is proved useful in overcoming the problem of event-induced variance. The third study compares the performance of four alternative return-generating models used in the event study. The market model is used as a performance benchmark against other models such as the quadratic model, the downside model and the higher order downside model in measuring the excess return of the share in the period of the corporate bond rating changes in the UK. The results indicate that there is enough evidence to support the existence of the private information effect during a rating downgrade but not a rating upgrade. The fourth study undertakes a comparison between reactions in Australia and the UK when S&P and Moody’s announced the bond rating revisions. In order to verify the result of share price reaction in developed capital markets in the period of the corporate bond rating changes announcements, an event study of 107 announcements of Australian bond rating changes is also carried out. In Australia, unlike the UK, significant share price reactions were observed in response to the upgrade and downgrade announcements. The fifth and the final study investigates the spillover effect on the foreign issuer’s local share price when the rating agency announced rating changes for corporate bonds issued by foreign issuers in the UK from 1997 to 2006. Based on 155 announcements of bond rating changes, there is enough evidence to confirm the existence of the spillover effect, found particularly during the rating downgrade announcements as shown by the combination sample (which includes all foreign issuers), Asia-Pacific and European companies
