Standard & Poor’s

Standard & Poor’s is one of the three largest financial information providers in the United States. It also provides long- and short-term credit ratings on individual companies.

The roots of Standard & Poor’s trace back to 1860, when Henry Poor compiled into book format information about the economic status and range of operations of all U.S. railroads. The information was updated and published annually. Given the speed with which some railroads formed, laid track, and went bankrupt, annual updates were not sufficient to keep investors informed of the situation. In 1906, Luther Blake founded the Standard Statistics BureauStandard Statistics Bureau. He began publishing on five-by-seven-inch cards financial information about all types of nonrailroad companies. His information specifically covered mining and mercantile concerns both in the East and on the West Coast. These cards were updated as often as necessary.Standard & Poor’s[Standard and Poors]

The primary buyers of the products of both companies were banks, both public and privately held, that catered to exceptionally wealthy investors. Stock trading was largely unregulated until the early part of the twentieth century. Unscrupulous companies and individuals often manipulated the stock market and provided false and misleading information to drive the price of shares up or down. Since the two companies were selling information, not stocks themselves, information provided by them was seen by investors as more accurate and dependable. The two financial information publishers merged in 1941 to form Standard & Poor’s.

In addition to providing financial information on companies and industries whose stocks are publicly traded, Standard & Poor’s also evaluates the debt levels of companies and issues credit ratings quantifying the likelihood that a specific company will repay its long-term as well as short-term debt. Long-term ratings run on a scale from AAA (best quality) to D (meaning the company has defaulted on its payments). A similar scale, from A1 to D, evaluates short-term debt and the likelihood of a company paying its debts in a timely manner. This credit rating system has been widely criticized for continuing to provide favorable ratings to companies in financial distress, thus possibly misleading many investors about the financial soundness of their investments.

As a service to all types of investors, both institutional and individual, Standard & Poor’s publishes a weekly newsletter that provides an overview of current activity in the U.S. economy and how that activity influences the stock market. The company’s most widely known financial information product is the S&P 500, a daily snapshot of the financial health and activity of five hundred of the largest publicly traded companies. The S&P 400 covers midsized companies with market capitalization up to $10 billion. The S&P 600 covers smaller companies up to $2 billion in market capitalization.

Further Reading

  • Cusick, Philip A. “Price Effects of Addition or Deletion from the Standard & Poor’s 500 Index: Evidence of Increasing Market Efficiency.” In Selected Essays in Finance, edited by William L. Silber. Boston: Blackwell, 2002.
  • Kaye, Michael. The Standard & Poor’s Guide to Selecting Stocks: Finding the Winners and Weeding Out the Losers. New York: McGraw-Hill, 2006.
  • Tigue, Joseph. The Standard & Poor’s Guide to Building Wealth with Dividend Stocks. New York: McGraw-Hill, 2006.



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