Seminar: The Job Rating Game: The Effects of Revolving Doors on Analyst Incentives
Tuesday April 12th, Elisabeth Kempf (Tilburg University) will present "The Job Rating Game: The Effects of Revolving Doors on Analyst Incentives".
Time: 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague
Presentation: Elisabeth Kempf (Tilburg University)
Discussant: Remco Mocking (CPB)
Language: English
Registration: Please register by sending an email to seminars@cpb.nl.
Abstract subject:
Investment banks frequently hire credit rating analysts from the major rating agencies. A widely held view is that this "revolving door" undermines analysts' incentives to issue accurate ratings. Using a hand-collected dataset of the performance and career paths of 229 credit rating analysts between 2000 and 2010, I provide new evidence on the effects of revolving doors on analyst incentives. For the large majority of securities they rate, analysts who eventually move to investment banks are significantly more accurate than other analysts rating similar securities at the same point in time. A notable exception is the small fraction of securities underwritten by their future employers, where revolving analysts do not outperform. My empirical design ensures that the results are not driven by selection of smart individuals into investment banking jobs, or by endogenous matching of revolving analysts to securities. My findings suggest that the revolving door on average strengthens rather than distorts analyst incentives, which may explain why revolving doors have remained open in many professions, despite the public criticism they have attracted.
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