Working Paper: NBER ID: w22477
Authors: Darren J. Kisgen; Matthew Osborn; Jonathan Reuter
Abstract: We examine whether credit rating agencies reward accurate or biased analysts. Using data collected from Moody’s corporate debt credit reports, we find that Moody’s is more likely to promote analysts who are accurate, but less likely to promote analysts who downgrade frequently. Combined, analysts who are accurate but not overly negative are approximately twice as likely to get promoted. Further, analysts whose rating changes are more informative to the market are more likely to get promoted, unless their ratings changes cause large negative market reactions. Moody’s balances a desire for accuracy with a desire to cater to its corporate clients.
Keywords: credit rating agencies; analyst promotions; accuracy; bias
JEL Codes: G14; G24; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| analysts' ratings accuracy (G24) | promotion likelihood (M51) |
| above-median stock price reactions (G14) | promotion likelihood (M51) |
| analysts' ratings accuracy (G24) | likelihood of departure (J63) |
| downgrade frequency (C69) | positive career outcomes (J62) |
| optimistic ratings (E66) | positive career outcomes (J62) |
| large negative announcement returns (G14) | positive career outcomes (J62) |