Abstract

http://ssrn.com/abstract=2230915
 
 

References (42)



 
 

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Are Credit Ratings Subjective? The Role of Credit Analysts in Determining Ratings


Cesare Fracassi


University of Texas at Austin

Stefan Petry


University of Melbourne; Financial Research Network (FIRN)

Geoffrey A. Tate


University of North Carolina Kenan-Flagler Business School

January 29, 2014


Abstract:     
We show that the identity of the credit analysts covering a firm significantly affects the firm’s credit rating, comparing ratings for the same firm at the same time across agencies. Analyst biases carry through to spreads on firms’ outstanding debt and yields on new public debt issues. Firms covered by more pessimistic analysts issue less debt, lean more on cash and equity financing, and experience slower revenue growth. We also identify specific traits that predict rating quality. MBAs provide less optimistic and more accurate ratings; however, optimism increases and accuracy decreases with tenure covering the firm, particularly among information-sensitive firms.

Number of Pages in PDF File: 66

Keywords: Credit Ratings, Credit Analysts, Credit Spread, Analyst Biases

JEL Classification: G24, G32, G02, G12

working papers series


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Date posted: March 11, 2013 ; Last revised: February 5, 2014

Suggested Citation

Fracassi, Cesare and Petry, Stefan and Tate, Geoffrey A., Are Credit Ratings Subjective? The Role of Credit Analysts in Determining Ratings (January 29, 2014). Available at SSRN: http://ssrn.com/abstract=2230915 or http://dx.doi.org/10.2139/ssrn.2230915

Contact Information

Cesare Fracassi
University of Texas at Austin ( email )
Red McCombs School of Business
1 University Station B660
Austin, TX 78712
United States
Stefan Petry
University of Melbourne ( email )
The Department of Finance
Faculty of Business & Economics
Melbourne, Victoria 3010
Australia
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Geoffrey A. Tate (Contact Author)
University of North Carolina Kenan-Flagler Business School ( email )
McColl Building
Chapel Hill, NC 27599-3490
United States

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