Abstract - Are Credit Ratings Subjective? The Role of Credit Analysts in Determining Ratings

Credit ratings affect firms’ access to capital and investment choices. We show that the identity of the credit analysts covering a firm significantly affects the firm’s rating, comparing ratings for the same firm in the same quarter across agencies. Analyst effects account for 30% of the within variation in ratings and 70%-80% of the effect carries through to credit spreads. Analysts with MBAs provide less optimistic and more accurate ratings; however, optimism increases and accuracy decreases with tenure covering the firm, particularly among information-sensitive firms. The market responds more to downgrades from long- tenured analysts, consistent with increased leniency over time.


Geoffrey Tate
UNC Kenan-Flagler Business School
28. May. 2013

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