Informational Effects of Regulation Fd: Evidence from Rating Agencies

36 Pages Posted: 20 Jun 2004 Last revised: 29 Mar 2015

See all articles by Philippe Jorion

Philippe Jorion

University of California, Irvine - Paul Merage School of Business

Alfred Z. Liu

University at Albany, SUNY

Charles Shi

NUS Business School, National University of Singapore

Date Written: May 1, 2004

Abstract

This paper studies changes in the information environment brought about by Regulation Fair Disclosure (FD), which was implemented on October 23, 2000. FD now prohibits U.S. public companies from making selective, non-public disclosures to favored investment professionals. FD, however, has a number of exclusions, one of which still allows disclosure of non-public information to credit rating agencies. As a result, credit analysts at rating agencies now have access to confidential information that is not made available to equity analysts any more. This can potentially increase the value of credit ratings to equity investors. We examine a sample of credit rating changes and their effect on the company's stock price. We find that the informational effect of downgrades and upgrades is much bigger in the post-FD period. Apparently, FD conferred a strategic advantage to the ratings agencies.

Keywords: Regulation Fair Disclosure, Regulation FD, credit rating agencies, market reaction, event study

JEL Classification: G18, G14, G28, G29, K22, M41

Suggested Citation

Jorion, Philippe and Liu, Zhu and Shi, Charles, Informational Effects of Regulation Fd: Evidence from Rating Agencies (May 1, 2004). Journal of Financial Economics 2005. Available at SSRN: https://ssrn.com/abstract=556824

Philippe Jorion (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Campus Drive
Irvine, CA 92697-3125
United States
949-824-5245 (Phone)
949-824-8469 (Fax)

Zhu Liu

University at Albany, SUNY ( email )

Albany, NY 12222
United States

Charles Shi

NUS Business School, National University of Singapore ( email )

15 Kent Ridge Dr
Singapore, 119245
Singapore
65-65161678 (Phone)

HOME PAGE: http://bschool.nus.edu/Accounting/FacultyStaff/Facultymembers.aspx

Register to save articles to
your library

Register

Paper statistics

Downloads
851
rank
26,691
Abstract Views
4,115
PlumX Metrics