Analyst Promotions within Credit Rating Agencies: Accuracy or Bias?

48 Pages Posted: 5 Feb 2016 Last revised: 8 Jul 2017

Darren J. Kisgen

Boston College - Carroll School of Management

Jordan Nickerson

Boston College

Matthew G Osborn

Cornerstone Research

Jonathan Reuter

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: July 6, 2017

Abstract

We infer Moody’s preference for accurate versus biased ratings using hand-collected data on the internal labor market outcomes of its analysts. We find that accurate analysts are more likely to be promoted and less likely to depart. The opposite is true for analysts who downgrade more frequently, who assign ratings below those predicted by a ratings model, and whose downgrades are associated with large negative market reactions. Downgraded firms are also more likely to be assigned a new analyst. We conclude that Moody’s is balancing its desire for accuracy against its desire to cater to corporate clients.

Keywords: Credit Ratings, Credit Analysts, NRSRO, Analyst Bias, Analyst Accuracy, Career Concerns, Internal Labor Markets

JEL Classification: G14, G24, G28

Suggested Citation

Kisgen, Darren J. and Nickerson, Jordan and Osborn, Matthew G and Reuter, Jonathan, Analyst Promotions within Credit Rating Agencies: Accuracy or Bias? (July 6, 2017). Available at SSRN: https://ssrn.com/abstract=2727434 or http://dx.doi.org/10.2139/ssrn.2727434

Darren J. Kisgen

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Jordan Nickerson

Boston College ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Matthew G Osborn

Cornerstone Research ( email )

1000 El Camino Real
Menlo Park, CA 94025-4327
United States
202-912-8905 (Phone)

HOME PAGE: http://https://www.cornerstone.com/

Jonathan Reuter (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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