56 Pages Posted: 11 Mar 2013 Last revised: 5 May 2017
Date Written: June 30, 2015
We find evidence of systematic optimism and pessimism among credit analysts, comparing contemporaneous ratings of the same firm across rating agencies. These differences in perspectives carry through to debt prices and negatively predict future changes in credit spreads, consistent with mispricing. Moreover, the pricing effects are the largest among firms that are the most opaque, likely exacerbating financing constraints. We find that MBAs provide higher quality ratings; however, optimism increases and accuracy decreases with tenure covering the firm. Our analysis demonstrates the role analysts play in shaping investor expectations and its effect on corporate debt markets.
Keywords: Analysts, Credit Ratings, Credit Spreads
JEL Classification: G24, G32, G02, G12
Suggested Citation: Suggested Citation
Fracassi, Cesare and Petry, Stefan and Tate, Geoffrey A., Does Rating Analyst Subjectivity Affect Corporate Debt Pricing? (June 30, 2015). Journal of Financial Economics (JFE), 120 (3), 514-538, June 2016. Available at SSRN: https://ssrn.com/abstract=2230915 or http://dx.doi.org/10.2139/ssrn.2230915
By Alex Edmans