Martedi' 9 Gennaio 2018 h. 15.00 (sala consigli)

Francesca Toscano (Wayne State University)

Does the Dodd-Frank Act Reduce the Conflict of Interests of Credit Rating Agencies?

Abstract:

I compare issuer-paid ratings, represented by Standard & Poor's (S&P) to investor-paid ratings, represented by Egan-Jones Ratings Company (EJR), after the Dodd-Frank Act. Results show that both S&P and EJR ratings are more conservative, stable and lower after Dodd-Frank. However, as opposed to previous literature, S&P lowers its ratings more generating a negative rating difference between S&P and EJR ratings, especially for firms with potentially greater conflicts of interest. The greater informativeness of issuer-paid ratings over investor-paid ones translates into a reduced bond market anticipation around S&P downgrades and into a greater impact of these ratings on the debt market.