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Revolving Rating Analysts and Ratings of MBS and ABS: Evidence from LinkedIn

Management Science, Forthcoming

62 Pages Posted: 28 May 2014 Last revised: 3 Aug 2017

John (Xuefeng) Jiang

Michigan State University - Department of Accounting & Information Systems

Isabel Yanyan Wang

Michigan State University

K. Philip Wang

University of Florida

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2017

Abstract

This study examines whether credit rating analysts who transition from major rating agencies to issuers are associated with any rating inflation in the issuers’ mortgage-backed securities (MBS) or asset-backed securities (ABS). Using professional profiles posted on LinkedIn to identify revolving rating analysts with structured finance rating experience, we find that when issuers employ more of such analysts the ratings of their new MBS and ABS issuances appear more inflated, compared to otherwise similarly rated securities. Additional analyses show that the impact of these revolving rating analysts is more pronounced in complex deals and when the analysts are more senior, indicating that rating expertise in structured finance may play a role in MBS and ABS rating inflation. Finally, we find that at least for AAA-rated MBS and ABS, investors fail to see through the rating inflation associated with revolving rating analysts.

Keywords: Credit Analysts, Rating Analysts, Credit Ratings, Mortgage-Backed Securities, Asset-Backed Securities, MBS, ABS, Financial Crisis, LinkedIn, Revolving Door, Moody's, S&P, Fitch

JEL Classification: G1, G21, G24, G28, L1

Suggested Citation

Jiang, John (Xuefeng) and Wang, Isabel Yanyan and Wang, K. Philip, Revolving Rating Analysts and Ratings of MBS and ABS: Evidence from LinkedIn (January 1, 2017). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2442472 or http://dx.doi.org/10.2139/ssrn.2442472

John (Xuefeng) Jiang (Contact Author)

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-432-3031 (Phone)
517-432-1101 (Fax)

HOME PAGE: http://www.msu.edu/~jiangj/

Isabel Wang

Michigan State University ( email )

N233 Business Complex
Broad School of Business
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.msu.edu/~wangyany/

Philip Wang

University of Florida ( email )

Warrington College of Business
PO Box 117166
Gainesville, FL 32611-7166
United States

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