IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v57y2022i6p2286-2323_7.html
   My bibliography  Save this article

Unintended Consequences of the Dodd–Frank Act on Credit Rating Risk and Corporate Finance

Author

Listed:
  • Sharma, Bina
  • Adhikari, Binay K.
  • Agrawal, Anup
  • Arthur, Bruno R.
  • Rabarison, Monika K.

Abstract

Prior research finds that Dodd–Frank Act’s regulations on credit rating agencies (CRAs) increase rated firms’ risk of rating downgrades, regardless of their credit quality. Our difference-in-difference estimates suggest that after Dodd–Frank, low-rated firms, which face steep costs from a further downgrade, significantly reduce their debt issuance and investments compared to similar unrated firms. Our results are not driven by credit supply or the financial crisis. They reveal an unintended consequence of Dodd–Frank: Greater regulatory pressure on CRAs leads to negative spillover effects on firms concerned about credit ratings, regardless of their credit quality.

Suggested Citation

  • Sharma, Bina & Adhikari, Binay K. & Agrawal, Anup & Arthur, Bruno R. & Rabarison, Monika K., 2022. "Unintended Consequences of the Dodd–Frank Act on Credit Rating Risk and Corporate Finance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 57(6), pages 2286-2323, September.
    • Handle: RePEc:cup:jfinqa:v:57:y:2022:i:6:p:2286-2323_7
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0022109021000831/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:57:y:2022:i:6:p:2286-2323_7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.