The Job Rating Game: Revolving Doors and Analyst Incentives
62 Pages Posted: 6 Jan 2017 Last revised: 13 Aug 2018
Date Written: August 10, 2018
Investment banks frequently hire analysts from rating agencies. While many argue that this "revolving door'' results in captured analysts, it can also create incentives to improve accuracy. To examine these issues, I construct an original dataset that links individual analysts to their career paths and to the securitized finance ratings they issue. I document that accurate analysts are more likely to be hired by underwriting investment banks. In addition, I exploit two distinct sources of variation in the likelihood of being hired by an underwriting bank. Both approaches imply that, as the likelihood to be hired by an underwriter rises, overall analyst accuracy improves. These findings suggest policymakers should consider incentive effects as well as capture concerns.
Keywords: Revolving Door, Career Concerns, Analysts, Credit Ratings, Securitized Finance
JEL Classification: G14, G24, G28
Suggested Citation: Suggested Citation