Analyst distance and credit rating consistency

In this paper, we investigate the effect of analyst distance on the assignment of credit ratings and show that issuers with analysts located in more distant offices obtain more conservative ratings than issuers with analysts located closer. Our results are robust to an analyst home bias and suggest that more distant analysts are subject to an informational disadvantage when conducting their rating analysis. Given an asymmetric reputational cost function that penalizes an overestimation of credit quality more heavily than an underestimation, assigning more conservative ratings is a rational response to the higher levels of information uncertainty that a greater distance can entail.