Information Content of Unsolicited Credit Ratings: Evidence from Japanese Firms


  • Acknowledgments: We appreciate the support for this project that was provided by the Hankamer School of Business at Baylor University and by the Center for International Business, Education and Research at the University of South Carolina. The original version of this paper “Unsolicited credit ratings: Theory and empirical evidence” was the winner of the 2003 Financial Management Association International Competitive Paper Award in Fixed Income Research. We are grateful to Allan Eberhart, Ted Moore, Chuck Kwok, Steve Rich, and participants in seminars at Baylor University, and FMA, MBEA, and SFA meetings for their valuable comments. We also thank Arlene Campbell for her help in preparation of the manuscript.

Corresponding author: Soku Byoun, Department of Finance, Insurance and Real Estate, Hankamer School of Business, Baylor University, One Bear Place 98004, Waco, TX 76798, USA. Tel: +254-710-7849, Fax: +254-710-1092, email:


Unsolicited ratings are credit ratings of firms that have not requested rating evaluation and, therefore, do not pay fees. Accordingly, unsolicited ratings are issued solely at the discretion of rating agencies based on public information. Given the controversy surrounding unsolicited ratings raised in some published studies as well as by Japanese firms, we examine whether the market extracts any new information from unsolicited ratings. We find that unsolicited ratings are typically of speculative grade rather than investment grade, they induce significant announcement period abnormal returns for downgrades, and they have greater impact for speculative-grade ratings than investment-grade ratings. Keiretsu affiliation of Japanese firms does not mitigate the negative market reaction to unsolicited rating downgrades. Our results suggest that high-quality firms signal their type through solicited ratings while low-quality firms are revealed through unsolicited ratings.