This paper shows that studies of announcement effects of bond rating changes should take into account the initial rating. First, we provide theoretical support for different price effects as a non-linear function of the initial credit rating, using a structural, Merton-type model linking the...

We investigate credit default swap (CDS) and stock price reactions to a variety of credit events, including news of economic distress, financial distress, M&A, SEC probe or accounting irregularities, and leverage buyout (LBO). The CDS spread shows a large spike of 37% to 96% depending on the...