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  • Does rating analyst subject...
    Fracassi, Cesare; Petry, Stefan; Tate, Geoffrey

    Journal of financial economics, 06/2016, Letnik: 120, Številka: 3
    Journal Article

    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 masters of business administration (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.