The job rating game: Revolving doors and analyst incentives

Elisabeth Kempf

Journal of Financial Economics, 2020, vol. 135, issue 1, 41-67

Abstract: Investment banks frequently hire analysts from rating agencies. While many argue that this “revolving door” creates captured analysts, it can also create incentives to improve accuracy. To study this issue, I construct an original data set, linking analysts to their career paths and the securitized finance ratings they issue. First, I show that accurate analysts are more frequently hired by underwriting investment banks. Second, I exploit two distinct sources of variation in the likelihood of being hired by a bank. Both indicate that, as this likelihood rises, analyst accuracy improves. The findings suggest policymakers should consider incentive effects alongside capture concerns.

Keywords: Revolving door; Career concerns; Analysts; Credit ratings; Securitized finance (search for similar items in EconPapers)
JEL-codes: G14 G24 G28 G30 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:135:y:2020:i:1:p:41-67

DOI: 10.1016/j.jfineco.2019.05.012

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