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Market-Based Solutions to Vital Economic Issues
Research
Jun 1, 2016

Does Rating Analyst Subjectivity Affect Corporate Debt Pricing

Abstract

We find evidence of systematic optimism and pessimism among credit analysts, comparing contemporaneous ratings of the same firm across rating agencies. These differences in perspectives carry through to debt prices and negatively predict future changes in credit spreads, consistent with mispricing. Moreover, the pricing effects are the largest among firms that are the most opaque, likely exacerbating financing constraints. We find that MBAs provide higher quality ratings; however, optimism increases and accuracy decreases with tenure covering the firm. Our analysis demonstrates the role analysts play in shaping investor expectations and its effect on corporate debt markets.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.


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