The Information Content of Australian Credit Ratings : A Comparison between Subscription and Non-Subscription Based Credit Rating Agencies

We classify credit rating agencies into two groups: subscribing and non-subscribing. Investors can access (non-subscribing) credit reports released to the public for no charge, or investors can subscribe to the fee-paying (subscribing) credit reports from agencies. Our results suggest that the information content of non-subscribing credit agencies is very low, whereas positive excess returns exist up to eight months after the announcement of credit upgrades from the subscription-only agencies. We support the hypothesis proposed in Grossman and Stiglitz (1976; 1980). Investors who spend resources on information acquisition should receive compensation for their information advantage, or there would be no incentive for such activity