1. The Economics of Solicited and Unsolicited Credit Ratings, (with Paolo Fulghieri and Gunter Strobl)
Review of Financial Studies, forthcoming
Conferences: WFA 2011, AFA 2012, EFA 2011, New York Fed/NUY Conference 2011, Texas Finance Festival 2011, UBC Winter Finance Conference 2011, WashU Corporate Finance Conference 2011
2. Can Investor-Paid Credit Rating Agencies Improve the Information Quality of Issuer-Paid Raters? Journal of Financial Economics, 2014 111 (2). [Internet Appendix]
Conferences: WFA 2012, FIRS 2012, CICF 2012
3. Do Lenders Still Monitor When They Can Securitize Loans?, (with Yihui Wang) Review of Financial Studies, forthcoming
Conferences: FIRS 2012, CICF 2012
1. When a Non-Event is an Event: The Curious Case of a Credit Rating Agency (with Utpal Bhattacharya and Kelsey Wei)
Conferences: WFA 2013, NBER Summer Workshop 2013, EFA 2013, SFS Cavalcade 2013, FIRS 2013, CICF 2013, UNC Round Table 2013Credit analysts often leave rating agencies to work at firms they rate. These analyst transfers provide a unique laboratory for studying revolving door effects. Benchmark rating agencies provide counterfactuals which allow us to measure ratings inflation in a difference-in-difference framework. We find that transitioning analysts become more favorable to their future employers in the year prior to their transitions. We further test the responsiveness of ratings to market-based measures of firms’ credit quality, and find that these conflicted ratings become less responsive to changes in credit quality in this period. Our results reveal the presence of previously untested forces that affect information production by credit rating analysts.
4. The Issuer-pays Rating Model and Rating Inflation: Evidence from Corporate Credit Ratings, (with Gunter Strobl)
Conferences: FIRS 2012, EFA 2011, WashU Corporate Finance Conference 2011
This paper provides evidence that the conflict of interest caused by the issuer-pays rating model leads to inflated corporate credit ratings. Comparing the ratings issued by Standard & Poor's Ratings Services (S&P) which follows this business model to those issued by the Egan-Jones Rating Company (EJR) which does not, we demonstrate that the difference between the two is more pronounced when S&P's conflict of interest is particularly severe: firms with more short-term debt, a newly appointed CEO or CFO, and a lower percentage of past bond issues rated by S&P are significantly more likely to receive a rating from S&P that exceeds their rating from EJR. However, we find no evidence that these variables are related to corporate bond yield spreads, which suggests that investors may be unaware of S&P's incentive to issue inflated credit ratings.