“Partisan Professionals: Evidence from Credit Rating Analysts”

ABSTRACT
Partisan bias affects the decisions of financial analysts. Using a novel hand-collected dataset that links credit rating analysts to party affiliations from voter records, we show that analysts who do not support the President’s party are more likely to downgrade firms. Our identification approach compares analysts with different party affiliations covering the same firm at the same point in time, ensuring that differences in the fundamentals of rated firms cannot explain the results. The effect is more pronounced in periods of increased partisan conflict and during election quarters. Overall, our results suggest that partisan bias and political polarization may have adverse effects on the U.S. economy.