[en] When firms are forced to publicly disclose financial information, credit rating agencies are generally expected to improve their risk assessments. Theory predicts such an information quality effect but also suggests an adverse reputational concerns effect since credit analysts may become increasingly concerned about alleged rating failures. We empirically examine these predictions using a large-scale quasi-natural experiment in Germany, where a new compliance regime required firms to disclose annual financial statements publicly. Consistent with the reputational concerns hypothesis, we find an average increase in credit rating downgrades that is entirely driven by changes in the discretionary assessments of credit analysts rather than changes in firm fundamentals. Following public disclosure regulations, analysts tend to give positive private information less weight in their risk assessments while assigning greater weight to negative public information. A final set of results indicates that professional credit providers recognize that the resulting downgrades are not warranted.
Precision for document type :
Review article
Disciplines :
Strategy & innovation
Author, co-author :
Vanhaverbeke, Steven; KU Leuven, Department of Accounting, Leuven, Belgium
BALSMEIER, Benjamin ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Economics and Management (DEM)
Doherr, Thorsten; Centre for European Economic Research (ZEW), Department of Economics of Innovation and Industrial Dynamics, Mannheim, Germany
External co-authors :
yes
Language :
English
Title :
Mandatory financial information disclosure and credit ratings
The authors gratefully acknowledge helpful comments from Johannes Bersch, Florence Blandinieres, Matthias Breuer, Eddy Cardinaels, Hans Christensen, Dirk Czarnitzki, Hans Degryse, Joao Granja, Christian Leuz, Georg Licht, Maximilian Muhn, Maximilian M\u00FCller, Mathijs Van Peteghem, Caspar David Peter, Reinhilde Veugelers, Jesse Wursten; and seminar participants at Chicago Booth School of Business, KU Leuven, Erasmus University Rotterdam, Humboldt University Berlin, ZEW, FARS Midyear Meeting, and the EAA Annual Meeting. Steven Vanhaverbeke gratefully acknowledges financial support from the Research Foundation - Flanders.The authors gratefully acknowledge helpful comments from Johannes Bersch, Florence Blandinieres, Matthias Breuer, Eddy Cardinaels, Hans Christensen, Dirk Czarnitzki, Hans Degryse, Joao Granja, Christian Leuz, Georg Licht, Maximilian Muhn, Maximilian M\u00FCller, Mathijs Van Peteghem, Caspar David Peter, Reinhilde Veugelers, Jesse Wursten; and seminar participants at Chicago Booth School of Business, KU Leuven, Erasmus University Rotterdam, Humboldt University Berlin, ZEW, FARS Midyear Meeting, and the EAA Annual Meeting. Steven Vanhaverbeke gratefully acknowledges financial support from the Flemish Science Foundation .
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