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  • January 2020
  • Article
  • Journal of Financial Economics

The Job Rating Game: Revolving Doors and Analyst Incentives

By: Elisabeth Kempf
  • Format:Print
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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 dataset, linking analysts to their career paths and the securitized finance ratings they issue. First, I document 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.

Keywords

Credit Rating Agencies; Investment Banking; Recruitment; Performance Evaluation; Financial Services Industry

Citation

Kempf, Elisabeth. "The Job Rating Game: Revolving Doors and Analyst Incentives." Journal of Financial Economics 135, no. 1 (January 2020): 41–67.

Supplemental Information

Internet Appendix
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About The Author

Elisabeth Kempf

Finance
→More Publications

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