former rating analysts and the ratings of mbs and abs.pdfVIP

Former rating analysts and the ratings of MBS and ABS: Evidence from LinkedIn * John X. Jiang, Isabel Y. Wang, and Kailong Wang Current version: May, 2014 Abstract Using self-posted profiles on LinkedIn , we identify 391 rating analysts who previously work in the structured finance divisions of Moody’s, SP or Fitch but later join issuers of mortgage - backed securities (MBS) and asset-backed securities (ABS) from 1997 to 2007. We find that MBS and ABS issued by firms that employ more former rating analysts suffer larger downgrades subsequently, implying that these former analysts help issuers inflate the initial ratings. Further analyses suggest former analysts influence ratings through their specialized knowledge in structured finance. We also find investors in AAA rated securities do not price the risk of rating inflation induced by former analysts. Keywords: Credit Analysts, Rating Analysts, Credit Ratings, Mortgage-Backed Securities, Asset-Backed Securities, MBS, ABS, Financial Crisis, LinkedIn, Revolving Door, Moody’s, SP, Fitch JEL Classification: G1, G21, G24, G28, L1 ___________________ * John Xuefeng Jiang (jiangj@ ), Isabel Yanyan Wang (wang@), and Kailong Wang (wangkai@) are all at the Eli Broad College of Business, Michigan State University. We appreciate the helpful comments from Andrew Acito, Bo Becker, Donal Byard, Carol Marquardt, Matt DeAngelis, John Griffin, Charlie Hadlock, Xing Huang, Marilyn Johnson, Hagit Levy, Edward Li, Jun (QJ) Qian, Sophia Li, Naveen Khanna, Ranjani Krishnan, Kathy Petroni, Dan Wangerin, and workshop participants at Michigan State University and Baruch College of CUNY. All errors are our own. Former rating analysts and the