Rating agencies have become more conservative in assigning corporate credit ratings over the period 1985 to 2009; holding ﬁrm characteristics constant, average ratings have dropped by three notches. This change does not appear to be fully warranted because defaults have declined over this period. Firms affected more by conservatism issue less debt, have lower leverage, hold more cash, are less likely to obtain a debt rating, and experience lower growth. Their debt spreads are lower than those of unaffected ﬁrms with the same rating, which implies that the market partly undoes the impact of conservatism on debt prices. This evidence suggests that ﬁrms and capital markets do not perceive the increase in conservatism to be fully warranted.