Where the Heart Is: Information Production and the Home Bias

66 Pages Posted: 3 Nov 2014 Last revised: 4 Mar 2019

See all articles by Jess Cornaggia

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: February 28, 2019

Abstract

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

Cornaggia, Jess and Cornaggia, Kimberly Rodgers and Israelsen, Ryan D., Where the Heart Is: Information Production and the Home Bias (February 28, 2019). 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 Rodgers 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)

HOME PAGE: http://directory.smeal.psu.edu/kjr15

Ryan D. Israelsen

Michigan State University - Department of Finance ( email )

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

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