Revolving doors on Wall Street

Jess Cornaggia, Kimberly J. Cornaggia and Han Xia

Journal of Financial Economics, 2016, vol. 120, issue 2, 400-419

Abstract: Credit analysts often leave rating agencies to work at firms they rate. We use benchmark rating agencies as counterfactuals to measure rating inflation in a difference-in-differences framework and find that transitioning analysts award inflated ratings to their future employers before switching jobs. We find no evidence that analysts inflate ratings of other firms they rate. Market based measures of hiring firms' credit quality further indicate that transitioning analysts' inflated ratings become less informative. We conclude that conflicts of interest at the analyst level distort credit ratings. More broadly, our results shed light on the economic consequences of revolving doors.

Keywords: Credit ratings; NRSRO; Regulatory capture; Revolving door; Credit analysts (search for similar items in EconPapers)
JEL-codes: G14 G24 G28 G32 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:120:y:2016:i:2:p:400-419

DOI: 10.1016/j.jfineco.2016.01.007

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