Structural Drivers of Credit Rating Uncertainty: An Examination of the Changes Imposed by Dodd-Frank

We examine credit rating disagreements subsequent to the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). We find that both the rate and magnitude of credit rating disagreements increase following the implementation of Dodd-Frank. Long-term issuer (new bond issue) ratings for non-financial firms in the Dodd-Frank era are 8.7% (12.3%) more likely to exhibit rating disagreement relative to the Regulation Fair Disclosure (Reg FD) era controlling for other factors. Additionally, the unconditional magnitude of disagreement increases 29.8% and 18.1% for issuer and issue ratings relative to those of the Reg FD era, respectively. Finally, we find that disagreements for firms that are more reliant on selective disclosure pre-Dodd-Frank are most pronounced following its passage. Changes in the protections governing the selective disclosure of material, non-public information to CRAs under Dodd-Frank may have unintentionally increased credit rating uncertainty.