The Job Rating Game: The Effects of Revolving Doors on Analyst Incentives

Investment banks frequently hire analysts from 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 245 credit analysts between 2000 and 2009, I show that the ratings by analysts who move to investment banks are on average more accurate than those by their non-revolving peers. A notable exception is the few securities underwritten by their future employers, where revolving analysts do not outperform. Overall, my findings suggest that the revolving door may, on average, strengthen analysts’ incentives to be accurate.