Where the Heart Is: Information Production and the Home Bias

This paper tests whether home bias exists among information producers. We find that credit analysts are more generous when rating issuers from their home states compared to (a) benchmark analysts from outside the state and (b) their own standards for rating issuers from other states. This home analyst effect strengthens around key rating certifications (AAA and investment grade), reduces credit spreads, and expands affected issuers’ debt capacity. We conduct several tests to address the possibility that the observed home analyst effect reflects a selection effect based on informational advantages and conclude that it instead reflects a home bias.

Keywords: Credit Ratings, Home Bias, Municipal Debt, Information Production, Capital Markets Regulation

JEL Classification: G24, G28, H70, H71, H72, H74

Suggested Citation: Suggested Citation

Cornaggia, Jess and Cornaggia, Kimberly and Israelsen, Ryan D., Where the Heart Is: Information Production and the Home Bias (June 28, 2019). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2518040 or http://dx.doi.org/10.2139/ssrn.2518040