The job rating game: Revolving doors and analyst incentives

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.