Abstract
AbstractWe study the effects of the Dodd–Frank Act (“Dodd–Frank”) on determinants of credit ratings. We predict that the increase in regulatory oversight and litigation risk prompted by Dodd–Frank, as well as requirements for improved disclosures and governance, motivated credit rating agencies (CRAs) to increase the reliance on verifiable quantitative fundamental information in determining ratings. We find that the power of firm fundamentals in explaining credit ratings increases significantly after Dodd–Frank. Furthermore, we find that the greater reliance on quantitative firm fundamentals at least partially drives the improvement in credit ratings’ ability to predict future defaults. Collectively, our evidence suggests that Dodd–Frank incentivizes CRAs to use more quantitative information in making rating decisions, which improves credit rating quality.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
