Ramin P. Baghai

Non-Rating Revenue and Conflicts of Interest

Rating agencies produce ratings used by investors, but obtain most of their revenue from issuers, leading to a conflict of interest. We employ a detailed panel data set on the use of non-rating services, and the associated payments, in India, to test to what extent this conflict affects credit ratings. Rating agencies rate issuers that hire them for non-rating services 0.3 notches higher (than agencies that are not hired for such services). Also, within rating categories, default rates are higher for firms that have paid for non-rating services. Both these effects are larger the larger the amount paid for non-rating services is. These results suggest that issuers which hire agencies for consulting services receive higher ratings despite not having lower credit risk.

Bankruptcy, Team-Specific Human Capital, and Productivity: Evidence from U.S. Inventors

We study the impact of corporate bankruptcies on teams and inventor productivity in the United States. We show that bankruptcy reduces team stability. After a bankruptcy, team inventors produce fewer and less impactful patents, and they are more likely to cease patenting. This points to the loss of team-specific human capital as a cost of resource reallocation through bankruptcy. Our findings also suggest that the labor market values teams and their stability. Past collaboration increases the probability of inventors jointly moving to a new firm after bankruptcy, and the productivity of inventors that relocate together with their team increases.We study the impact of corporate bankruptcies on the career and productivity of inventors in the United States. We find that the quality of patents produced by inventors decreases post-bankruptcy; this effect is exacerbated when inventor teams are dissolved during bankruptcy. Furthermore, workers affected by team dissolution are less likely to remain active as inventors. When, instead, inventor teams remain intact and jointly move to a new firm, their postbankruptcy productivity increases. Consistent with the labor market recognizing the value of team stability, the probability of joint inventor relocation after bankruptcy is positively associated with past collaboration. Our findings highlight the important role of team-specific human capital and team stability for the production of knowledge in the economy, and shed light on the microeconomic channels through which the process of “creative destruction” operates.