Unintended Consequences of the Dodd–Frank Act on Credit Rating Risk and Corporate Finance

Abstract Prior research finds that Dodd–Frank Act’s regulations on credit rating agencies (CRAs) increase rated firms’ risk of downgrades, regardless their quality. Our difference-in-difference estimates suggest after Dodd–Frank, low-rated firms, which face steep costs from a further downgrade, significantly reduce debt issuance and investments compared to similar unrated firms. results are not driven by supply or the financial crisis. They reveal an unintended consequence Dodd–Frank: Greater regulatory pressure CRAs leads negative spillover effects firms concerned about ratings,