Please use this identifier to cite or link to this item: http://hdl.handle.net/10125/64911

Regulatory Reform, Multiple Credit Ratings and the Quality of the Corporate Information Environment

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Title:Regulatory Reform, Multiple Credit Ratings and the Quality of the Corporate Information Environment
Authors:He Huang
Jiri Svec
Eliza Wu
Keywords:regulation
Dodd-Frank
credit ratings
bonds
earnings management
show 1 morecorporate risk-taking
show less
Date Issued:31 Aug 2019
Abstract:This paper examines the change in the regulatory use of multiple credit ratings after the Dodd-Frank Act (Dodd-Frank). We find that post Dodd-Frank reform firms are less likely to demand a third rating, which is typically provided by Fitch. Third ratings also become less informative with a much weaker market impact on credit spreads for firms on opposite sides of the high yield (HY) - investment grade (IG) boundary. Moreover, we find that post-Dodd-Frank, firms without external monitoring from a third ratings agency systematically manage their earnings more and have higher cash flow and sales volatilities. Overall, the results shed light on the unintended consequences of Dodd-Frank on competition within the ratings industry, the quality of the information environment, and the cost of borrowing for issuers.
URI:http://hdl.handle.net/10125/64911
Appears in Collections: 05 Financial: Debt Market Research (Including Credit Ratings/Debt Contracts)


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