Information Content of Unsolicited Credit Ratings: Evidence from Japanese Firms*

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Abstract
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.