NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Analyst Promotions within Credit Rating Agencies: Accuracy or Bias?

Darren J. Kisgen, Matthew Osborn, Jonathan Reuter

NBER Working Paper No. 22477
Issued in August 2016, Revised in August 2017
NBER Program(s):Corporate Finance

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.

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Document Object Identifier (DOI): 10.3386/w22477

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