The Regulatory Role of Credit Ratings and Voluntary Disclosure

ABSTRACT We find that corporate credit rating changes have an effect on firms' voluntary disclosure behavior that is independent of the information they convey about firm fundamentals. Our analyses exploit two separate quasi-experimental settings that generate either exogenous credit rating downgrades or credit rating upgrades (i.e., credit rating label changes). We find evidence of a negative relation between the direction of the credit rating label change and the provision of voluntary disclosure in both settings—firms respond to exogenous downgrades by increasing voluntary disclosure and to exogenous upgrades by decreasing voluntary disclosure. The effects we document are attributable to the regulatory role rather than the information role of credit ratings. Overall, our analyses indicate that credit rating agencies as gatekeepers influence firms' provision of voluntary disclosure. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G15; G18; M41.