Citations (4)



Revolving Doors on Wall Street

Jess Cornaggia

Georgetown University

Kimberly Rodgers Cornaggia

American University - Kogod School of Business

Han Xia

University of Texas at Dallas - Naveen Jindal School of Management

June 1, 2015

Journal of Financial Economics (JFE), Forthcoming

Credit analysts often leave rating agencies to work at firms they rate. We use benchmark rating agencies as counterfactuals to measure rating inflation in a difference-in-differences framework and find that transitioning analysts award inflated ratings to their future employers before switching jobs. We find no evidence that analysts inflate ratings of other firms they rate. Market-based measures of hiring firms’ credit quality further indicate that transitioning analysts’ inflated ratings become less informative. We conclude that conflicts of interest at the analyst level distort credit ratings. More broadly, our results shed light on the economic consequences of “revolving doors”.

Number of Pages in PDF File: 55

Keywords: Credit Ratings, Capital Markets Regulation, Human Capital, Regulatory Capture, Revolving Door, Credit Analysts, NRSROs, Analyst Labor Market

JEL Classification: G14, G24, G28, G32

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Date posted: September 23, 2012 ; Last revised: June 3, 2015

Suggested Citation

Cornaggia, Jess and Cornaggia, Kimberly Rodgers and Xia, Han, Revolving Doors on Wall Street (June 1, 2015). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: http://ssrn.com/abstract=2150998 or http://dx.doi.org/10.2139/ssrn.2150998

Contact Information

Jess Cornaggia
Georgetown University ( email )
3700 O Street, NW
Washington, DC 20057
United States
HOME PAGE: http://www.jesscornaggia.com
Kimberly Rodgers Cornaggia (Contact Author)
American University - Kogod School of Business ( email )
4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
Han Xia
University of Texas at Dallas - Naveen Jindal School of Management ( email )
P.O. Box 830688
Richardson, TX 75083-0688
United States
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