Joint SAFE and Finance Seminar
Speaker: Geoffrey Tate, University of North Carolina - Kenan-Flagler Business School
Title: Are Credit Ratings Subjective? The Role of Credit Analysts in Determining Ratings
Abstract: 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.