Analyst changes and credit ratings

Abstract

We investigate the effect of credit analyst changes on long-term ratings of S&P 500 issuers between 2002 and 2015. We find that analyst changes are associated with a higher probability of rating changes during first two quarters following such a change. In contrast to the argumentation of rating agencies, our results show that rating processes are prone to the influence of individual analyst behavior. Analyst changes are also associated with lower credit ratings. However, this lowering effect is limited in terms of economic magnitude. Our results empirically inform policies requiring mandatory credit analyst rotation.

Keywords: rating agencies, credit ratings, credit analysts, rotation policy, analyst bias

JEL Classification: G14, G24, G28