A significant proportion of the debt issued by investment‐grade firms has maturities greater than 20 years. In this paper we provide evidence that gap‐filling behavior is an important determinant of these very long‐term issues. Using data on individual corporate debt issues between 1987 and 2009, we find that gap‐filling behavior is more prominent in the very long end of the maturity spectrum where the required risk capital makes arbitrage costly. In addition, changes in the supply of long‐term government bonds affect not just the choice of maturity but also the overall level of corporate borrowing.

Mandated public dissemination of over-the-counter transactions in corporate debt securities via the TRACE system dramatically reduces the average short-term market reaction to rating downgrades by both issuer-paid and investor-paid rating agencies. Ratings become relatively more accurate predictors of default and more sensitive to innovations in credit spreads after the introduction of dissemination. However, in transparent markets, they provide no significant information about future defaults beyond that provided by credit spreads. Dissemination increases the efficiency of information aggregation and transmission in bond markets, thereby reducing the incremental information content of ratings and the price impact of rating revisions. (JEL D83, G14, G24) This research is partially funded by financial support from the Robert J. Trulaske, Sr. College of Business Large Grant Program. We thank two anonymous referees; Philip Strahan (the editor), Christopher James, Oguzhan Ozbas, Narayan Bulusu (discussant); seminar participants at the Central Bank of the Republic of Turkey; and participants at 15th Paris December Finance Meeting for helpful comments.

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Past studies document that incentive conflicts may lead issuer-paid credit rating agencies to provide optimistically biased ratings. In this paper, we present evidence that investors question the quality of issuer-paid ratings and raise corporate bond yields where the issuer-paid rating is more positive than benchmark investor-paid ratings. We also find that some firms with favorable issuer-paid ratings substitute public bonds with borrowings from informed intermediaries to mitigate the "lemons discount" associated with poor quality ratings. Overall, our results suggest that the quality of issuer-paid ratings has significant effects on borrowing costs and the choice of debt.