Credit ratings and management earnings forecasts: Evidence from the Dodd–Frank act

In compliance with legislation from the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank), the Office of the Comptroller of the Currency (OCC) passed a final rule in June 2012 which requires banks and savings associations to actively monitor and assess their debt investments rather than passively relying on credit ratings. The OCC specifically directs these institutions to examine default risk by focusing on “operating and financial performance.” We utilize this regulatory change to examine how greater demand for information by major institutions impacts the corporate disclosures of issuers. We focus on forward looking management earnings forecasts (MEFs) and find greater bond market reaction to MEFs after the OCC rule. These results suggest that greater demand for information by bondholders has a significant impact on the quality of issuer's forward looking corporate disclosures.