The Job Rating Game: Revolving Doors and Analyst Incentives

62 Pages Posted: 6 Jan 2017 Last revised: 13 Aug 2018

Elisabeth Kempf

University of Chicago - Booth School of Business

Date Written: August 10, 2018

Abstract

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

Kempf, Elisabeth, The Job Rating Game: Revolving Doors and Analyst Incentives (August 10, 2018). Available at SSRN: https://ssrn.com/abstract=2893903 or http://dx.doi.org/10.2139/ssrn.2893903

Elisabeth Kempf (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://www.chicagobooth.edu/faculty/directory/k/elisabeth-kempf

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