Are Bond Ratings Informative? Evidence from Regulatory Regime Changes

2019, American Economic Association Poster Session, Forthcoming

Posted: 7 Aug 2018 Last revised: 15 Jan 2019

See all articles by Louis H. Ederington

Louis H. Ederington

University of Oklahoma - Division of Finance

Jeremy Goh

Singapore Management University - Lee Kong Chian School of Business

Yen Teik Lee

National University of Singapore (NUS) - Department of Finance

Lisa Yang

Montana State University - Bozeman

Date Written: May 21, 2018

Abstract

The Dodd-Frank Act (Section 939B) enacted in 2010 repealed credit rating agencies’ (CRAs) exemption from Regulation Fair Disclosure. Testing whether CRAs continue to provide new information to the market after the repeal, we find that the significant pre-repeal stock price responses to rating changes disappear after the regime change. Bond price reactions however remain significant. These results are even more significant at the investment-speculative boundary. Our evidence suggests that CRAs served as a conduit for transmitting private information before the repeal and that the continued bond price reactions are likely due to regulations favoring higher rated bonds.

Keywords: Credit Ratings; Market Reactions; Rating-Contingent Regulation; Regulation Fair Disclosure; Dodd-Frank Act; Section 939B

JEL Classification: G01; G24; G28

Suggested Citation

Ederington, Louis H. and Goh, Jeremy and Lee, Yen Teik and Yang, Lisa, Are Bond Ratings Informative? Evidence from Regulatory Regime Changes (May 21, 2018). 2019, American Economic Association Poster Session, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3216175

Louis H. Ederington

University of Oklahoma - Division of Finance ( email )

Norman, OK 73019
United States
405-325-5591 (Phone)
405-325-7688 (Fax)

Jeremy Goh

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Yen Teik Lee

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

Lisa Yang (Contact Author)

Montana State University - Bozeman ( email )

Bozeman, MT 59717-2920
United States

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