The Job Rating Game: Revolving Doors and Analyst Incentives
52 Pages Posted: 6 Jan 2017 Last revised: 12 Nov 2018
Date Written: November 11, 2018
Investment banks frequently hire analysts from rating agencies. While many argue that this "revolving door" creates captured analysts, it can also create incentives to improve accuracy. To study this issue, I construct an original dataset, linking analysts to their career paths and the securitized finance ratings they issue. First, I document that accurate analysts are more frequently hired by underwriting investment banks. Second, I exploit two distinct sources of variation in the likelihood of being hired by a bank. Both indicate that, as this likelihood rises, analyst accuracy improves. The findings suggest policymakers should consider incentive effects alongside capture concerns.
Keywords: Revolving Door, Career Concerns, Analysts, Credit Ratings, Securitized Finance
JEL Classification: G14, G24, G28; G30
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