Management Tenure and the Quality of Corporate Bond Ratings

Journal of Management Accounting Research, Forthcoming

Georgetown McDonough School of Business Research Paper No. 3674999

49 Pages Posted: 1 Oct 2020 Last revised: 13 Jul 2022

See all articles by Eliza Xia Zhang

Eliza Xia Zhang

University of Washington Tacoma; University of Washington, Tacoma

Jason D. Schloetzer

Georgetown University - McDonough School of Business; Georgetown University - Department of Accounting and Business Law; Georgetown University - Department of Accounting and Business Law

Date Written: August 16, 2020

Abstract

We examine the implication of management for credit rating quality by focusing on the relation between management tenure and rating quality. Using a large sample of corporate bond issues in the U.S., we find robust evidence that firms with longer-tenured CEOs have lower rating quality, as reflected in lower rating accuracy, informativeness, and timeliness. Further analyses uncover two channels that underlie this relation. One channel is through learned confidence: as CEO tenure increases, rating agencies learn about how the CEO influences firm value, which leads agencies to reduce their caution and effort in management assessment. The other channel is through developed relationships: as CEO tenure increases, rating agencies develop relationships with the CEO, which leads agencies to reduce scrutiny of or cater to the CEO and her firm. Overall, we show that management tenure has important implications for the external oversight of rating agencies.

Keywords: External Monitoring; Credit Ratings; Rating Quality; Qualitative Analysis; Relationship; Chief Executive Officers; CEO Tenure

Suggested Citation

Zhang, Eliza Xia and Zhang, Eliza Xia and Schloetzer, Jason D., Management Tenure and the Quality of Corporate Bond Ratings (August 16, 2020). Journal of Management Accounting Research, Forthcoming, Georgetown McDonough School of Business Research Paper No. 3674999, Available at SSRN: https://ssrn.com/abstract=3674999

Eliza Xia Zhang (Contact Author)

University of Washington, Tacoma

1900 Commerce Street
Tacoma, WA 98402-3100
United States

University of Washington Tacoma ( email )

310 Dougan
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United States
5738235607 (Phone)
5738235607 (Fax)

Jason D. Schloetzer

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-2672 (Phone)

HOME PAGE: http://explore.georgetown.edu/people/jds99/?PageTemplateID=319

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

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