The Game Changer: Regulatory Reform and Multiple Credit Ratings

35 Pages Posted: 16 Aug 2021

See all articles by He Huang

He Huang

The University of Sydney, Discipline of Finance

Jiri Svec

The University of Sydney - Discipline of Finance

Eliza Wu

The University of Sydney - Business School; Financial Research Network (FIRN)

Date Written: June 2021

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, Dodd-Frank, credit ratings, corporate bonds

JEL Classification: G01, G24, G28

Suggested Citation

Huang, He and Svec, Jiri and Wu, Eliza, The Game Changer: Regulatory Reform and Multiple Credit Ratings (June 2021). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3904440

He Huang (Contact Author)

The University of Sydney, Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Jiri Svec

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia
+61 2 9036 6241 (Phone)

Eliza Wu

The University of Sydney - Business School ( email )

University of Sydney
Darlington
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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