Many financially distressed students who qualify for federal assistance plans with interest moratorium and principal forgiveness instead accrue interest over long periods of nonpayment. This loan mismanagement is associated with higher delinquency. Mismanagement varies significantly across student gender and race: it is more prominent among male and non-white students. Mismanagement also varies across loan servicers, depending on proxies for student-adverse servicer policies. We consider explanations based on student selection and servicer treatment for loan mismanagement. Student financial literacy plays an important role but variation in treatment on the part of loan servicers appears more important.

We compare the stability and timeliness of credit ratings produced by a traditional issuer-paid rating agency (Moody's Investors Service) and a subscriber-paid rater (Rapid Ratings). Moody's ratings exhibit less volatility but are slower to identify default risk. We control for Moody's aversion to ratings volatility and still find its ratings lag Rapid Ratings'. More importantly, accuracy ratios indicate that Rapid Ratings provides a better ordinal ranking of credit risk. We quantify the loss avoidance associated with Rapid Ratings'signals to estimate costs associated with regulatory and contractual systems based on issuer-paid ratings.

We examine the relationship between credit rating levels and rating agency fees in a public finance market in which rating agencies earn lower fees and face higher disclosure requirements relative to corporate bond and structured finance markets. Controlling for variation in the complexity of credit analysis at the issue level, we find evidence that rating agency conflicts of interest distort credit ratings in the municipal bond market. Unexpectedly expensive ratings are more likely downgraded, and inexpensive ratings are more likely upgraded. The relationship between credit ratings and rating agency fees is driven by issuers who lose access to AAA insurance.

Pending changes in lease accounting standards will require firms to recognize obligations that have historically been kept off-balance-sheet (OBS). We examine the implications of this accounting treatment for a host of common risk and performance metrics. Conventional leverage, Z-Score, levered beta, return on capital and other asset utilization measures underestimate risk and overstate performance of firms relying heavily on OBS leasing. The distortion affects relative rankings as well as average levels and has increased over time. Proposed changes in reporting standards aim to mitigate future distortion, but necessitate adjustments for time-series comparisons. Under current reporting standards, investors, analysts, and researchers can estimate leased asset value and adjust accounting-based metrics to better reflect these fixed costs.

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.

We test whether credit rating analysts consider managerial ability as a credit risk factor and find that higher‐ability managers obtain more favorable credit ratings. Controlling for past performance, these results suggest that managerial ability is itself a significant credit rating factor. Cross‐sectional analyses indicate that managerial ability is beneficial specifically in firms facing financial or competitive pressure. We find that high‐ability managers mitigate the adverse impact on ratings of other credit risk factors including negative earnings and low interest coverage. Our results contribute to a growing literature documenting economic benefits to hiring and retaining high‐quality management.

We study financial effects of remote product delivery in the healthcare industry. Exploiting staggered law adoption for identification, we find that telehealth provision redistributes hospital operations and access to capital away from rural communities. As urban telehealth providers acquire rural patients, rural hospitals experience decreased revenue and profit, credit rating downgrades, increased cost of capital, and ultimately risk of closure. Although telehealth reduces travel costs, some communities lose access to acute care. Overall, we conclude that remote healthcare services have financial consequences as well as real effects, and their benefits are unequally distributed.

Credit analysts often leave rating agencies to work at firms they rate. We use benchmark rating agencies as counterfactuals to measure rating inflation in a difference-in-differences framework and find that transitioning analysts award inflated ratings to their future employers before switching jobs. We find no evidence that analysts inflate ratings of other firms they rate. Market based measures of hiring firms' credit quality further indicate that transitioning analysts' inflated ratings become less informative. We conclude that conflicts of interest at the analyst level distort credit ratings. More broadly, our results shed light on the economic consequences of revolving doors.