THE IMPACT OF CREDIT RATING CHANGE ON NORTH AMERICAN COMPANIES' CORPORATE DECISION AND STOCK PERFORMANCE

This paper analyses the impact of credit rating changes from two aspects. Firstly,credit rating will impact company capital structure decisions. It is found thatcompanies generally issue more debt when forecasting a credit downgrade totake the advantage of the relatively low cost of capital, while a small number offirms keep corporate structure unchanged due to flexibility concerns. Secondly,there is an offset pattern in daily abnormal returns and volatility of stock returnsincreases after a credit rating change event. Specifically, downgrade has abigger impact on stock performance.