| Summary: | The objective of this research is to examine differences behavior investors to
bond rating changes in foreign and domestic companies. The event date is the
time when PT Pefindo as a rating agency in Indonesia announce the changes of
bond rating during 2002-2011. Event study method is used to analyze investor
reaction to bond rating changes announcement. The samples are taken by
purposive sampling method and the results are 89 observation, 51 upgrade and 8
downgrade for foreign companies, 15 upgrade and 16 downgrade for domestic
companies.
Market model used to calculate whether there is any abnormal return. Event
windows are 21 days which 10 days before the rating announcement, the day of
rating announcement, and 10 days after the rating announcement. The variables
is average abnormal return.
Generally, the were positive abnormal return at bond rating upgrade
announcement and there were negative abnormal return at bond rating
downgrade announcement. The result is Indonesian Capital Market, especially
Indonesian Stock Exchange significantly react to bond rating upgrade and
downgrade, for both categories of foreign and domestic companies. This results
indicates that investors react positively to the announcement of the change of
bond rating companies foreign and domestic. This research also find different
response from investors, where the reaction of investors to changes of bond rating
from domestic companies higher than to changes of bond rating from foreign
companies.
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