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Title: The roles of rating outlooks : the predictor of creditworthiness and the monitor of recovery efforts
Authors: Poon, WPH 
Shen, J 
Issue Date: Oct-2020
Source: Review of quantitative finance and accounting, Oct. 2020, v. 55, no. 3, p. 1063-1091
Abstract: Using a comprehensive U.S. rating sample from S&P between 1981 and 2015, we examine the information content, responsiveness to credit risk and recovery efforts associated with rating outlooks. We find that rating outlooks (and credit watches) have important information content and are significantly associated with creditworthiness, measured by expected default frequency. More importantly, we show that by assigning negative outlooks, credit rating agencies induce some issuers to exert recovery efforts to prevent subsequent downgrades. The findings support the theoretical prediction of Boot et al. (Rev Financ Stud 19(1):81–118, 2006) that credit rating actions serve as a coordination mechanism between rating agencies and issuers.
Keywords: Rating outlook
Information content
Credit risk
Recovery effort
Publisher: Springer
Journal: Review of quantitative finance and accounting 
ISSN: 0924-865X
EISSN: 1573-7179
DOI: 10.1007/s11156-019-00868-7
Rights: © Springer Science+Business Media, LLC, part of Springer Nature 2020
This is a pre-print of an article published in Review of Quantitative Finance and Accounting. The final authenticated version is available online at:
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