Where the Heart Is: Information Production and the Home Bias
66 Pages Posted: 3 Nov 2014 Last revised: 4 Mar 2019
Date Written: February 28, 2019
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
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