Are Bond Ratings Informative? Evidence from Regulatory Regime Changes

The Dodd-Frank Act (Section 939B) enacted in 2010 repealed credit rating agencies' (CRAs) exemption from Regulation Fair Disclosure.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