Working Paper: NBER ID: w25292
Authors: Elisabeth Kempf; Margarita Tsoutsoura
Abstract: Partisan perception affects the actions of professionals in the financial sector. Using a novel dataset linking credit rating analysts to party affiliations from voter records, we show that analysts who are not affiliated with the U.S. president's party downward-adjust corporate credit ratings more frequently. By comparing analysts with different party affiliations covering the same firm in the same quarter, we ensure that differences in firm fundamentals cannot explain the results. We also find a sharp divergence in the rating actions of Democratic and Republican analysts around the 2016 presidential election. Our results show analysts' partisan perception has sizable price effects on rated firms and may influence firms' investment policies.
Keywords: partisan perception; credit ratings; financial analysts; political alignment; investment decisions
JEL Codes: G14; G24; G41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| partisan perception (D72) | significant price effects on rated firms (G32) |
| alignment with president's party (D79) | changes in rating behavior of analysts (G24) |
| credit rating analysts not affiliated with the president's party (D79) | downward adjustment of corporate credit ratings (G33) |
| analysts misaligned with the president's party (D79) | downgrade average firm's rating (G24) |
| misaligned analysts (D79) | larger stock price declines and increases in bond yields (G10) |