EFFECTIVENESS OF CREDIT RATING: A STUDY OF BOND RATING AND ITS IMPACT ON STOCK PERFORMANCE

Abstract

The present research aimed to study the effectiveness of credit rating in India. CRAs have played major role in enhancing capital market but in recent past have been criticized for low quality rating. Credit Rating is a grade assigned by credit rating agencies on creditworthiness of debt issuers. These grades reflect the quality and risk of rated instruments. This study focused on quality of bond rating grades and their impact on stock performance. In India, the mandatory bond rating, compulsory capital financing through bonds and at the same time, the presence of weak corporate bond market motivated me to carry out the research in Indian corporate bond market. The study proceeded with two research questions - whether the rating grades are reliable and do the bond ratings have the ability to influence stock prices