The game changer: Regulatory reform and multiple credit ratings

He Huang, Jiri Svec and Eliza Wu

Journal of Banking & Finance, 2021, vol. 133, issue C

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 (typically from Fitch) for ratings near the high yield (HY) - investment grade (IG) boundary to support their new corporate bond issues. Third ratings also become less informative post Dodd-Frank, with a much weaker market impact on credit spreads for firms with S&P and Moody's ratings on opposite sides of the HY-IG rating boundary. We provide new evidence on the effect of Dodd-Frank in curbing corporate borrowers’ strategic use of multiple credit ratings near this boundary.

Keywords: Financial regulation; Credit ratings; Corporate bonds; Dodd-Frank (search for similar items in EconPapers)
JEL-codes: G01 G24 G28 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:133:y:2021:i:c:s0378426621002351

DOI: 10.1016/j.jbankfin.2021.106279

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