The Effect of Credit Ratings on Disclosure: Evidence from the Recalibration of Moody's Municipal Ratings
ABSTRACT This paper examines how credit rating levels affect municipal debt issuers’ disclosure decisions. Using exogenous upgrades in credit rating levels caused by the recalibration of Moody's municipal ratings scale in 2010, we find that upgraded municipalities significantly reduce their dis...
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Veröffentlicht in: | Journal of accounting research 2020-06, Vol.58 (3), p.693-739 |
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description | ABSTRACT
This paper examines how credit rating levels affect municipal debt issuers’ disclosure decisions. Using exogenous upgrades in credit rating levels caused by the recalibration of Moody's municipal ratings scale in 2010, we find that upgraded municipalities significantly reduce their disclosure of required continuing financial information, relative to unaffected municipalities. Consistent with a reduction in debtholders’ demand for information driving these results, the reduction in disclosure is greater when municipal bonds are held by investors who relied more on disclosure ex ante. However, we also find that the reduction in disclosure does not manifest when issuers are monitored by underwriters with greater issuer‐specific expertise and when issuers are subject to direct regulatory enforcement through the receipt of federal funding. Overall, our results suggest that higher credit rating levels lower investor demand for disclosure in the municipal market, and highlight the role of underwriters and direct regulatory enforcement in maintaining disclosure levels when investor demand is low. |
doi_str_mv | 10.1111/1475-679X.12307 |
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This paper examines how credit rating levels affect municipal debt issuers’ disclosure decisions. Using exogenous upgrades in credit rating levels caused by the recalibration of Moody's municipal ratings scale in 2010, we find that upgraded municipalities significantly reduce their disclosure of required continuing financial information, relative to unaffected municipalities. Consistent with a reduction in debtholders’ demand for information driving these results, the reduction in disclosure is greater when municipal bonds are held by investors who relied more on disclosure ex ante. However, we also find that the reduction in disclosure does not manifest when issuers are monitored by underwriters with greater issuer‐specific expertise and when issuers are subject to direct regulatory enforcement through the receipt of federal funding. Overall, our results suggest that higher credit rating levels lower investor demand for disclosure in the municipal market, and highlight the role of underwriters and direct regulatory enforcement in maintaining disclosure levels when investor demand is low.</description><identifier>ISSN: 0021-8456</identifier><identifier>EISSN: 1475-679X</identifier><identifier>DOI: 10.1111/1475-679X.12307</identifier><language>eng</language><publisher>Chicago: Blackwell Publishing Ltd</publisher><subject>Bond ratings ; Credit ratings ; Disclosure ; Enforcement ; Financial information ; Moody's recalibration ; Municipal bonds ; municipal disclosure ; Ratings & rankings ; Single Audit Act ; underwriters</subject><ispartof>Journal of accounting research, 2020-06, Vol.58 (3), p.693-739</ispartof><rights>University of Chicago on behalf of the Accounting Research Center, 2020</rights><rights>2020 The Accounting Research Center at the University of Chicago Booth School of Business</rights><lds50>peer_reviewed</lds50><oa>free_for_read</oa><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c4367-e88c1a8d17099cfdf14f0b965bd7f7cd825d5d8a74445da6399a1e08114fd1b93</citedby><cites>FETCH-LOGICAL-c4367-e88c1a8d17099cfdf14f0b965bd7f7cd825d5d8a74445da6399a1e08114fd1b93</cites><orcidid>0000-0003-2287-6794</orcidid></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://onlinelibrary.wiley.com/doi/pdf/10.1111%2F1475-679X.12307$$EPDF$$P50$$Gwiley$$H</linktopdf><linktohtml>$$Uhttps://onlinelibrary.wiley.com/doi/full/10.1111%2F1475-679X.12307$$EHTML$$P50$$Gwiley$$H</linktohtml><link.rule.ids>314,780,784,1417,27924,27925,45574,45575</link.rule.ids></links><search><creatorcontrib>GILLETTE, JACQUELYN R.</creatorcontrib><creatorcontrib>SAMUELS, DELPHINE</creatorcontrib><creatorcontrib>ZHOU, FRANK S.</creatorcontrib><title>The Effect of Credit Ratings on Disclosure: Evidence from the Recalibration of Moody's Municipal Ratings</title><title>Journal of accounting research</title><description>ABSTRACT
This paper examines how credit rating levels affect municipal debt issuers’ disclosure decisions. Using exogenous upgrades in credit rating levels caused by the recalibration of Moody's municipal ratings scale in 2010, we find that upgraded municipalities significantly reduce their disclosure of required continuing financial information, relative to unaffected municipalities. Consistent with a reduction in debtholders’ demand for information driving these results, the reduction in disclosure is greater when municipal bonds are held by investors who relied more on disclosure ex ante. However, we also find that the reduction in disclosure does not manifest when issuers are monitored by underwriters with greater issuer‐specific expertise and when issuers are subject to direct regulatory enforcement through the receipt of federal funding. Overall, our results suggest that higher credit rating levels lower investor demand for disclosure in the municipal market, and highlight the role of underwriters and direct regulatory enforcement in maintaining disclosure levels when investor demand is low.</description><subject>Bond ratings</subject><subject>Credit ratings</subject><subject>Disclosure</subject><subject>Enforcement</subject><subject>Financial information</subject><subject>Moody's recalibration</subject><subject>Municipal bonds</subject><subject>municipal disclosure</subject><subject>Ratings & rankings</subject><subject>Single Audit Act</subject><subject>underwriters</subject><issn>0021-8456</issn><issn>1475-679X</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2020</creationdate><recordtype>article</recordtype><recordid>eNqFkM1LwzAYh4MoOKdnrwEPnrolbdo03sacXzgGY4K3kObDZXTNTFpl_72ZVa--lxdent_vhQeAS4xGOM4YE5onBWWvI5xmiB6Bwd_lGAwQSnFSkrw4BWchbBBCLM_wAKxXaw1nxmjZQmfg1GtlW7gUrW3eAnQNvLVB1i50Xt_A2YdVupEaGu-2sI3JpZaitpWPfGRjwdw5tb8OcN41VtqdqH-7zsGJEXXQFz97CF7uZqvpQ_K8uH-cTp4TSbKCJrosJRalwhQxJo0ymBhUsSKvFDVUqjLNVa5KQQkhuRJFxpjAGpU4cgpXLBuCq7535917p0PLN67zTXzJU4JIJBEhkRr3lPQuBK8N33m7FX7PMeIHnfwgjx_k8W-dMVH0iU9b6_1_OH9aTJZ98AvM8Hdn</recordid><startdate>202006</startdate><enddate>202006</enddate><creator>GILLETTE, JACQUELYN R.</creator><creator>SAMUELS, DELPHINE</creator><creator>ZHOU, FRANK S.</creator><general>Blackwell Publishing Ltd</general><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope><orcidid>https://orcid.org/0000-0003-2287-6794</orcidid></search><sort><creationdate>202006</creationdate><title>The Effect of Credit Ratings on Disclosure: Evidence from the Recalibration of Moody's Municipal Ratings</title><author>GILLETTE, JACQUELYN R. ; SAMUELS, DELPHINE ; ZHOU, FRANK S.</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c4367-e88c1a8d17099cfdf14f0b965bd7f7cd825d5d8a74445da6399a1e08114fd1b93</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2020</creationdate><topic>Bond ratings</topic><topic>Credit ratings</topic><topic>Disclosure</topic><topic>Enforcement</topic><topic>Financial information</topic><topic>Moody's recalibration</topic><topic>Municipal bonds</topic><topic>municipal disclosure</topic><topic>Ratings & rankings</topic><topic>Single Audit Act</topic><topic>underwriters</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>GILLETTE, JACQUELYN R.</creatorcontrib><creatorcontrib>SAMUELS, DELPHINE</creatorcontrib><creatorcontrib>ZHOU, FRANK S.</creatorcontrib><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>Journal of accounting research</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>GILLETTE, JACQUELYN R.</au><au>SAMUELS, DELPHINE</au><au>ZHOU, FRANK S.</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>The Effect of Credit Ratings on Disclosure: Evidence from the Recalibration of Moody's Municipal Ratings</atitle><jtitle>Journal of accounting research</jtitle><date>2020-06</date><risdate>2020</risdate><volume>58</volume><issue>3</issue><spage>693</spage><epage>739</epage><pages>693-739</pages><issn>0021-8456</issn><eissn>1475-679X</eissn><abstract>ABSTRACT
This paper examines how credit rating levels affect municipal debt issuers’ disclosure decisions. Using exogenous upgrades in credit rating levels caused by the recalibration of Moody's municipal ratings scale in 2010, we find that upgraded municipalities significantly reduce their disclosure of required continuing financial information, relative to unaffected municipalities. Consistent with a reduction in debtholders’ demand for information driving these results, the reduction in disclosure is greater when municipal bonds are held by investors who relied more on disclosure ex ante. However, we also find that the reduction in disclosure does not manifest when issuers are monitored by underwriters with greater issuer‐specific expertise and when issuers are subject to direct regulatory enforcement through the receipt of federal funding. Overall, our results suggest that higher credit rating levels lower investor demand for disclosure in the municipal market, and highlight the role of underwriters and direct regulatory enforcement in maintaining disclosure levels when investor demand is low.</abstract><cop>Chicago</cop><pub>Blackwell Publishing Ltd</pub><doi>10.1111/1475-679X.12307</doi><tpages>47</tpages><orcidid>https://orcid.org/0000-0003-2287-6794</orcidid><oa>free_for_read</oa></addata></record> |
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subjects | Bond ratings Credit ratings Disclosure Enforcement Financial information Moody's recalibration Municipal bonds municipal disclosure Ratings & rankings Single Audit Act underwriters |
title | The Effect of Credit Ratings on Disclosure: Evidence from the Recalibration of Moody's Municipal Ratings |
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