Corporate financing and anticipated credit rating changes

Firm circumstances change but rating agencies may not make timely revisions to their ratings, increasing information asymmetry between firms and the market. We examine whether firms time the securities market before a credit rating agency publicly reveals its decision to downgrade a firm's credit rating. Using quarterly data, we show that firms adjust their financing structures before credit rating downgrades are publicly revealed. More specifically, firms on average increase their debt financing by 1.29% before the disclosure of a rating downgrade, and we find that this increase is due to the issuance of debt rather than the repurchase of equity. In contrast, firms do not take significant financing actions before credit rating upgrades