THE INFLUENCE OF RATING ANALYSTS ON CREDIT RATINGS – AN INTERNATIONAL STUDY

Abstract

This study examines if credit rating analysts have an influence over credit ratings. Using a sample of Moody’s credit ratings, our results indicate that credit rating analysts do have an influence over rating issues across countries. Specifically, analyst influence over ratings are more pronounced in countries that are less developed and with weak investor protection. We further show that analysts have a greater influence when they operate within a less hierarchical corporate culture. Lastly, this study provide evidence that the following analyst observable characteristics contribute to ratings issued: ethnicity, educational qualifications, career history and progression, industry specialisation and years of experience of analyst. Given investors’ heavy reliance on credit ratings across countries, a re-evaluation of existing regulatory measures, enforcing tighter controls and disclosure measures, particularly in developing countries, will help minimize the adverse consequences that arise due to conflicts of interest that occur at the individual analyst level.