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Exogenous Credit Rating Changes and the Provision of Voluntary Disclosure

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Title:Exogenous Credit Rating Changes and the Provision of Voluntary Disclosure
Authors:Basu, Riddha
Naughton, James
Wang, Clare
Keywords:Credit ratings
voluntary disclosure
information intermediaries
Date Issued:11 Aug 2018
Abstract:We provide evidence suggesting that corporate credit rating changes have an effect on firms’ voluntary disclosure behavior that is independent of the information they convey about firm fundamentals. Our analyses exploit two separate quasi-experimental settings that generate either exogenous credit rating downgrades or credit rating upgrades that allow us to isolate the effect of the credit rating label from changes in firms’ credit quality. We find evidence of a negative relation between the direction of the credit rating change and the provision of voluntary disclosure in both settings—firms respond to exogenous downgrades by increasing voluntary disclosure and to exogenous upgrades by decreasing voluntary disclosure. Overall, our analyses indicate that credit rating agencies as information intermediaries influence firms’ provision of voluntary disclosure.
Appears in Collections: 18 Financial: Credit ratings/Intangible assets/other financial accounting issues

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