Revolving Doors on Wall Street
Kimberly Rodgers Cornaggia
American University - Kogod School of Business
University of Texas at Dallas - Naveen Jindal School of Management
January 20, 2014
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 ratings inflation in a difference-in-difference framework. We find that transitioning analysts become more favorable to their future employers in the year prior to their transitions. We further test the responsiveness of ratings to market-based measures of firms’ credit quality, and find that these conflicted ratings become less responsive to changes in credit quality in this period. Our results reveal the presence of previously untested forces that affect information production by credit rating analysts.
Number of Pages in PDF File: 53
Keywords: Credit Ratings, Capital Markets Regulation, Human Capital, Regulatory Capture, Revolving Door, Credit Analysts, NRSROs, Analyst Labor Market
JEL Classification: G14, G24, G28, G32working papers series
Date posted: September 23, 2012 ; Last revised: January 21, 2014
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