Analyst Distance and Credit Rating Consistency

58 Pages Posted: 29 Jun 2020

See all articles by Marc Altdörfer

Marc Altdörfer

University of Ulm - Department of Mathematics and Economics

Andre Guettler

University of Ulm - Department of Mathematics and Economics; Halle Institute for Economic Research

Gunter Löffler

Ulm University

Date Written: June 4, 2020

Abstract

We investigate the effect of analyst distance in the credit rating industry and show that issuers with analysts located in more distant offices have lower default rates than issuers with closer analysts and the same rating. Our results are robust to an analyst home bias and suggest that more distant analysts are subject to a local informational disadvantage when conducting their rating analysis. Given an asymmetric reputational cost function that implies penalizing an overestimation of credit quality more heavily than an underestimation, we can demonstrate that it is rational for analysts to assign more conservative ratings for higher levels of information uncertainty.

Keywords: Credit ratings, Distance, Home bias, Default risk, Credit analysts

JEL Classification: G15, G24

Suggested Citation

Altdörfer, Marc and Guettler, Andre and Löffler, Gunter, Analyst Distance and Credit Rating Consistency (June 4, 2020). Available at SSRN: https://ssrn.com/abstract=3619161 or http://dx.doi.org/10.2139/ssrn.3619161

Marc Altdörfer (Contact Author)

University of Ulm - Department of Mathematics and Economics ( email )

Helmholzstrasse
Ulm, D-89081
Germany

Andre Guettler

University of Ulm - Department of Mathematics and Economics ( email )

Helmholzstrasse
Ulm, D-89081
Germany

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Gunter Löffler

Ulm University ( email )

Helmholzstrasse
Ulm, D-89081
Germany
+49 731 50 23598 (Phone)
+49 731 50 23950 (Fax)

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