The Informational Content of Unsolicited Ratings

This paper investigates whether the stock market reacts to unsolicited ratings for a sample of S&P rated firms from January 1996 to December 2005. We first analyze the stock market reaction associated with the assignment of an initial unsolicited rating. We find evidence that this reaction is negative and particularly accentuated for small Japanese firms from the non-financial sector. We then analyze the stock market reaction to changes of unsolicited ratings for a Japanese sub-sample and find that here also the stock market reacts negatively. Our re-sults imply that unsolicited ratings convey new information to the stock market and that in-vestors react to this information. Although unsolicited ratings are based on publicly available information only, the stock market seems to be inefficient in processing this information for Japanese companies