A Closer Look at Credit Rating Processes: Uncovering the Impact of Analyst Rotation

Abstract

We investigate the effect of credit analyst rotation in the context of long-term ratings of S&P 500 issuers between 2002 and 2015. We find that analyst rotation in the coverage of issuers is associated with higher rating activity and a lower credit risk assessment (e.g., rating downgrades) following the appointment of a new credit analyst. Our results provide empirical support for policies relating to mandatory credit analyst rotation programs.

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

JEL Classification: G14, G24, G28