Previous research documents differences in trading desk skills across management companies that result in significant variation in execution costs. In this paper, we utilize links between management companies and their institutional clients to explore variation in execution costs within management companies. For a subset of management companies, we find that systematic differences in execution costs exist across clients; these differences are comparable to the variation documented across management companies and persist over time. Clients who receive lower execution costs reward management companies with an increase in dollar trading volume. We find no evidence that the results are driven by broker commissions or differences in trading practices. Given the economic significance of our findings and implications for institutional investors, this aspect of execution should be recognized regardless of the ultimate source of the differences.

A common belief held among researchers and policy makers is that regulatory reliance has inflated market demand for credit ratings, despite their decreasing informational value. Advances in information technology, coupled with reputation losses following the subprime crisis, renew the question of whether investors still rely on ratings to assess credit risk. Using Moody’s 2010 scale recalibration, which was unrelated to changing issuer fundamentals, we find that ratings still matter to investors and to issuers—apart from any regulatory implications. Our results commend improved disclosure to mitigate mechanistic reliance on ratings and inefficiencies due to rating standards that vary across asset classes. Received October 9, 2015; editorial decision June 7, 2017 by Editor Andrew Karolyi.