Revolving Doors on Wall Street
Kimberly Rodgers Cornaggia
American University - Kogod School of Business
University of Texas at Dallas - Naveen Jindal School of Management
March 11, 2015
Credit analysts often leave rating agencies to work at firms they rate. These analyst transfers provide a unique laboratory for studying revolving door effects. Benchmark rating agencies provide counterfactuals which allow us to measure rating inflation in a difference-in-differences framework. We find that transitioning analysts become more favorable to their future employers prior to their transitions. Market-based measures of hiring firms’ credit quality further indicate that these conflicted ratings become less informative. We conclude that conflicts of interest at the analyst level distort credit ratings.
Number of Pages in PDF File: 65
Keywords: Credit Ratings, Capital Markets Regulation, Human Capital, Regulatory Capture, Revolving Door, Credit Analysts, NRSROs, Analyst Labor Market
JEL Classification: G14, G24, G28, G32
Date posted: September 23, 2012 ; Last revised: March 13, 2015
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