Impact of Changes in the Philippines’ Credit Ratings on Stock Prices of Listed Real Estate Companies in the Philippines

Abstract

This study utilizes event study methodology to evaluate the impact of the Philippines’ credit rating changes on listed real estate companies. Key rating events and corresponding stock price reactions were analyzed in 34 firms from the 1997 to 2023 dataset. The examination analyzes market reaction by combining cumulative average abnormal returns (CAARs) and t-statistics during 3, 21, 41, and 61-day events. The analysis of multiple event windows demonstrates that stock markets deliver stronger and more enduring negative reactions to downgrades than positive reactions to upgrades. The research result supports the loss aversion theory since investors display greater intensity when processing negative information. Furthermore, the research, through the lens of Efficient Market Hypothesis (EMH) and Signaling Theory, shows that although stock prices should immediately adapt to new information, stocks produce significant CAARs mainly during extended event windows, suggesting that markets take time to incorporate information fully. The market response begins slowly when downgrades occur but becomes increasingly intense. Investor reactions to credit rating changes show the greatest strength when these actions occur during market volatility. The research yields essential knowledge about how investors respond to the news while demonstrating the duration factors active in the Philippine real estate market.