TY - JOUR
T1 - Regulation, asset complexity, and the informativeness of credit ratings
AU - Jankowitsch, Rainer
AU - Ottonello, Giorgio
AU - Subrahmanyam, Marti G
PY - 2023/8
Y1 - 2023/8
N2 - We show that the effect of regulation on credit rating informativeness depends on asset complexity. Using the Dodd-Frank Act as a shock to the rating industry, we analyze the impact of rating changes on market prices, conditioning on various measures of complexity. Rating informativeness improves after Dodd-Frank, but not for assets with high complexity. Our results are robust to alternative measures of informativeness and provide strong evidence that the impact of regulation varies in the cross-section of securities. Our findings are consistent with models combining rating shopping with rating agencies that strategically decide on information acquisition and rating inflation.
AB - We show that the effect of regulation on credit rating informativeness depends on asset complexity. Using the Dodd-Frank Act as a shock to the rating industry, we analyze the impact of rating changes on market prices, conditioning on various measures of complexity. Rating informativeness improves after Dodd-Frank, but not for assets with high complexity. Our results are robust to alternative measures of informativeness and provide strong evidence that the impact of regulation varies in the cross-section of securities. Our findings are consistent with models combining rating shopping with rating agencies that strategically decide on information acquisition and rating inflation.
U2 - 10.1093/rcfs/cfac003
DO - 10.1093/rcfs/cfac003
M3 - Article
SN - 2046-9128
VL - 12
JO - The Review of Corporate Finance Studies
JF - The Review of Corporate Finance Studies
IS - 3
M1 - cfac003
ER -