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The job rating game: Revolving doors and analyst incentives

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  • Kempf, Elisabeth

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.

Suggested Citation

  • Kempf, Elisabeth, 2020. "The job rating game: Revolving doors and analyst incentives," Journal of Financial Economics, Elsevier, vol. 135(1), pages 41-67.
  • Handle: RePEc:eee:jfinec:v:135:y:2020:i:1:p:41-67
    DOI: 10.1016/j.jfineco.2019.05.012
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    5. Guo, Yifeng & Mota, Lira, 2021. "Should information be sold separately? Evidence from MiFID II," Journal of Financial Economics, Elsevier, vol. 142(1), pages 97-126.

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    More about this item

    Keywords

    Revolving door; Career concerns; Analysts; Credit ratings; Securitized finance;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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