Downgrade

A term that refers to a negative change in the rating of a security. This may be its credit rating or its recommendation rating given by analysts. A company is downgraded because of weak financial performance or negative expectations by analysts.

When a company’s credit rating is downgraded, it leads to higher costs for borrowing and negative expectations about the company.

When a company’s rating by analysts is downgraded, it usually causes a selloff in the company’s stock on that day, though it may not have a lasting effect. Due to certain reasons, analysts rarely downgrade a stock to “Sell”, a downgrade to “Hold” is quite negative already.

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