The impact of credit rating information on disclosure quality

Do credit ratings affect the information content of corporate disclosure? Using novel data on rating analysts to obtain exogenous variation in rating information, we find that greater uncertainty in credit ratings increases the quality of information disclosed by the firm. This is consistent with the firm attempting to reduce overall uncertainty about value by improving the quality of its own disclosure. We further show that improved disclosure is beneficial to firms. Our results are consistent with theories in which improvements in one type of information can crowd out other types, and they suggest that policies aimed at improving rating accuracy may, in fact, reduce the quality of corporate disclosure.