Credit Ratings Accuracy and Analyst Incentives

  title={Credit Ratings Accuracy and Analyst Incentives},
  author={Heski Bar-Isaac and Joel Shapiro},
The financial crisis has brought a new focus on the accuracy of credit rating agencies (CRAs). In this paper, we highlight the incentives of analysts at the CRAs to provide accurate ratings. We construct a model in which analysts initially work at a CRA and can then either remain or move to a bank. The CRA uses incentive contracts to motivate analysts, but does not capture the benefits if the analyst moves. We find that rating agency accuracy increases with CRA monitoring, bank profitability (a… CONTINUE READING