Structural Drivers of Credit Rating Uncertainty: An Examination of the Changes Imposed by Dodd-Frank

Jun Duanmu () and Garrett A. McBrayer ()
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Jun Duanmu: Seattle University
Garrett A. McBrayer: Boise State University

Journal of Financial Services Research, 2024, vol. 65, issue 2, No 5, 243-267

Abstract: Abstract We examine credit rating disagreements subsequent to the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). We find that both the rate and magnitude of credit rating disagreements increase following the implementation of Dodd-Frank. Long-term issuer (new bond issue) ratings for non-financial firms in the Dodd-Frank era are 8.7% (12.3%) more likely to exhibit rating disagreement relative to the Regulation Fair Disclosure (Reg FD) era controlling for other factors. Additionally, the unconditional magnitude of disagreement increases 29.8% and 18.1% for issuer and issue ratings relative to those of the Reg FD era, respectively. Finally, we find that disagreements for firms that are more reliant on selective disclosure pre-Dodd-Frank are most pronounced following its passage. Changes in the protections governing the selective disclosure of material, non-public information to CRAs under Dodd-Frank may have unintentionally increased credit rating uncertainty.

Keywords: Dodd-Frank; Credit ratings; Regulation (search for similar items in EconPapers)
JEL-codes: G01 G14 G24 G28 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10693-023-00399-2

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