Law Firms on the Big Board?: A Proposal for Nonlawyer Investment in Law Firms

We investigate a prominent allegation in Congressional hearings that Moody's loosened its standards for assigning credit ratings after it went public in the year 2000 in an attempt to chase market share and increase revenue. We exploit a difference-indifference design by benchmarking Moody's ratings with those assigned by its rival S&P before and after 2000. Consistent with Congressional allegations, we find that Moody's credit ratings for new and existing corporate bonds are significantly more favorable to issuers relative to S&P's after Moody's initial public offering (IPO) in 2000. Moreover, such relative loosening of credit standards at Moody's after its IPO is more pronounced for clients where Moody's is likely to face larger conflicts of interest: (i) large issuers; and (ii) firms that are more likely to benefit from better ratings, on the margin. Our findings have implications for incentives created by a public offering for capital market gatekeepers and professional firms. _______________________________________________________________________________________ We acknowledge financial assistance from our respective schools. All errors are ours alone. Did Going Public Impair Moody's Credit Ratings? "Many former employees said that after the public listing, Moody's culture changed, it went "from [a culture] resembling a university academic department to one which values revenues at all costs," according to Eric Kolchinsky, a former managing director of Moody's" (The Financial Crisis Inquiry Report 2011, page 207)

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Law Firms on the Big Board?: A Proposal for Nonlawyer Investment in Law Firms

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Did going public impair Moody׳s credit ratings?

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