The Job Rating Game: Revolving Doors and Analyst Incentives

52 Pages Posted: 6 Jan 2017 Last revised: 12 Nov 2018

See all articles by Elisabeth Kempf

Elisabeth Kempf

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: November 11, 2018

Abstract

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 fi ndings 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

Suggested Citation

Kempf, Elisabeth, The Job Rating Game: Revolving Doors and Analyst Incentives (November 11, 2018). Journal of Financial Economics (JFE), Forthcoming, 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

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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