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We observe an intra-industry effect following a bank loan rating downgrade announcement, which differs for large and small competitors. A significant negative market reaction occurs between smaller competitors and rated firms, indicating the presence of a contagion effect; while significantly positive market reactions for larger competitors of rated firms indicate a competitive effect is present. We compare the size of rated firms with a corresponding competitor at firm level instead of aggregating at an industry level. This approach indicates an intra-industry effect is present, which differs depending on the relative size of competitors to the announcing firm. Our results confirm that rating agencies offer valuable information to the marketplace.
