Analyst Promotions within Credit Rating Agencies: Accuracy or Bias?

Darren J. Kisgen, Jordan Nickerson, Matthew Osborn, and Jonathan Reuter

We estimate Moody’s preference for accurate versus biased ratings using hand-collected data on the internal labor market outcomes of its analysts. We find that accurate analysts are more likely to be promoted and less likely to depart. The opposite is true for analysts who downgrade more frequently, who assign ratings below those predicted by a ratings model, and whose downgrades are associated with large negative market reactions. Downgraded firms are also more likely to be assigned a new analyst. These patterns are consistent with Moody’s balancing its desire for accuracy against its corporate clients’ desire for higher ratings.