Revolving Rating Analysts and Ratings of MBS and ABS: Evidence from LinkedIn

Management Science Forthcoming

53 Pages Posted: 7 Aug 2017

See all articles by John (Xuefeng) Jiang

John (Xuefeng) Jiang

Michigan State University

Isabel Yanyan Wang

Michigan State University

K. Philip Wang

Fisher School of Accounting, University of Florida

Multiple version iconThere are 2 versions of this paper

Date Written: August 4, 2017

Abstract

This study examines whether revolving rating analysts who transition from major rating agencies to issuers are associated with any rating inflation in the issuers’ mortgage-backed securities (MBS) or asset-backed securities (ABS). Using professional profiles posted on LinkedIn to identify revolving rating analysts with structured finance rating experience, we find that the more the issuers employ such analysts, the more likely that ratings of issuers’ MBS and ABS new issuances are inflated, compared to otherwise similarly rated securities. Additional analyses show that the impact of revolving rating analysts is more pronounced in complex deals and when the revolving analysts are more senior, indicating that rating expertise in structured finance may play a role in MBS and ABS rating inflation. Finally, we find that at least for AAA-rated MBS and ABS, investors fail to see through the rating inflation associated with revolving rating analysts.

Keywords: Credit Ratings, Rating Analysts, Mortgage-Backed Securities, Asset-Backed Securities, MBS, ABS, Financial Crisis, LinkedIn, Revolving Door, Moody’s, S&P, and Fitch

JEL Classification: G1, G21, G24, G28, L1

Suggested Citation

Jiang, John (Xuefeng) and Wang, Isabel and Wang, Philip, Revolving Rating Analysts and Ratings of MBS and ABS: Evidence from LinkedIn (August 4, 2017). Management Science Forthcoming, Available at SSRN: https://ssrn.com/abstract=3013618

John (Xuefeng) Jiang (Contact Author)

Michigan State University ( email )

632 Bogue St Ste N505
Eli Broad College of Business
East Lansing, MI 48824
United States
517-432-3031 (Phone)
517-432-1101 (Fax)

HOME PAGE: http://sites.google.com/view/johnjiang

Isabel Wang

Michigan State University ( email )

N233 Business Complex
Broad School of Business
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.msu.edu/~wangyany/

Philip Wang

Fisher School of Accounting, University of Florida ( email )

Gainesville, FL 32611-7166
United States

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