Abstract
Standalone ratings measure a bank's intrinsic financial strength but-unlike all-in ratings-do not incorporate potential sovereign or parent-bank support. On July 20, 2011, Fitch switched from a 9-point to a 21-point scale for its standalone ratings but did not alter its all-in ratings. We investigate if the stock market reacted to this refinement of public information about bank fundamentals. We find that shareholders rewarded (penalized) banks that received positive (negative) rating surprises. We also find that Fitch used the refinement to inflate standalone ratings, in particular for large banks, banks with low 9-point standalone ratings, and banks headquartered outside North America.
King, Michael R