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Where the Heart Is: Information Production and the Home Bias

61 Pages Posted: 3 Nov 2014 Last revised: 14 Mar 2017

Jess Cornaggia

Pennsylvania State University - Department of Finance

Kimberly Rodgers Cornaggia

Pennsylvania State University - Department of Finance

Ryan D. Israelsen

Michigan State University - Department of Finance

Date Written: March 13, 2017

Abstract

This paper shows that home bias exists among information producers and has real economic effects. Credit analysts who rate issuers in their home states are more generous than benchmark analysts who grew up in other states. This effect strengthens around key rating certifications (AAA and investment grade), reduces credit spreads, and expands affected issuers’ debt capacity. Because this effect is driven by where analysts grew up, not by where they produce ratings, we conclude that our results reflect home bias rather than superior information. Tests of timeliness and symmetry in rating updates by home and outside analysts further support this conclusion. We also find that analysts’ early life experiences influence the magnitude of the home bias.

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

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

Suggested Citation

Cornaggia, Jess and Cornaggia, Kimberly Rodgers and Israelsen, Ryan D., Where the Heart Is: Information Production and the Home Bias (March 13, 2017). Available at SSRN: https://ssrn.com/abstract=2518040 or http://dx.doi.org/10.2139/ssrn.2518040

Jess Cornaggia (Contact Author)

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://jesscornaggia.com

Kimberly Cornaggia

Pennsylvania State University - Department of Finance ( email )

306 Business Bldg
University Park, PA 16802
United States
814-865-2243 (Phone)
814-865-3362 (Fax)

Ryan Israelsen

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

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