scholarly journals Sovereign Credit Rating Mismatches

2018 ◽  
pp. 49-70
Author(s):  
António Afonso ◽  
André Albuquerque
Keyword(s):  
Credit Rating ◽  
Credit Ratings ◽  
External Debt ◽  
Gdp Per Capita ◽  
Sovereign Credit ◽  
Sovereign Credit Ratings ◽  
Relevant Variables ◽  
Per Capita ◽  
Investment Grade ◽  
Sovereign Credit Rating

We study the factors behind ratings mismatches in sovereign credit ratings from different agencies, for the period 1980‑‑2015. Using random effects ordered and simple probit approaches, we find that structural balances and the existence of a default in the last ten years were the least significant variables. In addition, the level of net debt, budget balances, GDP per capita and the existence of a default in the last five years were found to be the most relevant variables for rating mismatches across agencies. For speculative‑‑grade ratings, a default in the last two or five years decreases the rating difference between S&P and Fitch. For the positive rating difference between S&P and Moody’s, and for investment‑‑grade ratings, an increase in external debt leads to a smaller rating gap between the two agencies.

scholarly journals Sovereign Credit Ratings and Asian Financial Markets

2021 ◽  
Vol 24 (1) ◽  
pp. 165-181
Author(s):  
Khansa Pervaiz ◽  
Zuzana Virglerová ◽  
Muhammad Asif Khan ◽  
Usman Akbar ◽  
József Popp
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Credit Rating ◽  
Credit Ratings ◽  
Market Development ◽  
Sovereign Credit ◽  
Sovereign Credit Ratings ◽  
Financial Market Development ◽  
Sovereign Credit Rating

Each region/country seeks to become more efficient to gain the confidence of potential investors. Most of the Asian economies are categorized as emerging markets, where the role of financial markets has even become more intensified to provide financial services to increasing economic and financial activities. Asian financial market has momentously suffered during the Asian, and global financial crisis. The mass destruction was mainly caused due to the mounting uncertainty, which spillover throughout the region, where investors lost their confidence. Considering the pivotal economic role of financial markets, and implications evolve due to sovereign credit rating announcements, this study aims to model the role of sovereign credit rating announcements by Standard and Poor’s, and Moody’s on financial market development of the Asian region. For 24 Asian countries/regions, we perform a regression analysis on sovereign credit rating changes based on financial market development index and its factors. The findings of Driscoll Kraay’s robust estimator reveals that improvement in sovereign credit rating score enhances the financial market development in the region. Moreover, we applied several robustness checks, such as alternative estimators, alternative measures, and three sub-dimensions of financial market development. According to the findings from these robustness checks, the positive impact of sovereign credit ratings on financial market development in the region is robust. Unlike prior literature (which is confined to the event study approach), this study utilizes the historical grades to establish the relationship under the standard error clustering approach. Due to the diversity of investors’ speculations, we propose a micro-level extension of the present model to overcome a difference in country policy.

scholarly journals KEY DETERMINANTS OF LITHUANIA’S SOVEREIGN CREDIT RATING

Ekonomika ◽  
2011 ◽  
Vol 90 (1) ◽  
pp. 73-84
Author(s):  
Aušra Pačebutaitė
Keyword(s):  
Credit Rating ◽  
Credit Ratings ◽  
Foreign Debt ◽  
Economic Downturn ◽  
Eastern European ◽  
Sovereign Credit ◽  
Sovereign Credit Ratings ◽  
The Face ◽  
External Borrowing ◽  
Sovereign Credit Rating

The topic concerning the determinants affecting sovereign credit ratings of a country became extremely relevant after the recent economic turbulence which brought relentless downgrades, especially for Central and Eastern European (CEE) countries in their sovereign credit ratings. In the face of economic downturn around the world, causing the reduced availability of global capital flows and the appetite for risk, it becomes essential for the countries to secure the high market grade ratings in order to be able to issue foreign debt to ensure the solvency of the country’s finances and to pursue a sound economic growth.The aim of the study was to elucidate the key determinants of the Lithuanian sovereign rating during the financial turbulence of 2008 and to explain their importance and dynamics through external borrowing costs of the country.

scholarly journals Examining the Factors Affecting Sovereign Credit Rating of Gulf Cooperation Council Countries

2020 ◽  
Vol 12 (1) ◽  
pp. 12
Author(s):  
Yaser A. AlKulaib ◽  
Musaed S. AlAli
Keyword(s):  
Interest Rate ◽  
Credit Rating ◽  
Government Debt ◽  
Gulf Cooperation Council ◽  
Gdp Per Capita ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Per Capita ◽  
Sovereign Credit Rating

Despite the controversy surrounding the credibility of credit rating agencies’ rating systems, these agencies' ratings still play a crucial role in determining the premium paid by governments on their bonds. As a result, obtaining a high sovereign credit rating would lower borrowing costs and more demand for their bonds. In order to do so, policymakers should be aware of the factors that mostly affect the sovereign credit rating of their countries. While there are many factors credit rating agencies consider when assigning a sovereign credit rating for any country, this study aims to identify the factors that mostly affect Gulf Cooperation Council (GCC) countries’ sovereign credit ratings assigned by the biggest three credit rating agencies, Standard and Poor’s (S&P), Moody’s, and Fitch. This study is based on the Gulf Cooperation Council (GCC) data 2012–2018. Results obtained from this research show that interest rate, government debt to GDP ratio, GDP per capita, and the labeling of the country as developed or developing country was the variables that mostly affect the S&P rating. GDP per capita and government debt to GDP were the factors that most influenced Moody’s scores. In contrast, GDP, interest rate, transparency score, government debt to GDP, and GDP per capita were the factors that most affect Fitch's credit rating scores. The results also revealed that in 2018, Kuwait was the most overrated country, while Oman was the most underrated country.

A comparative study of economic growth as a key determinant of sovereign credit ratings in Africa

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Misheck Mutize ◽  
McBride Peter Nkhalamba
Keyword(s):  
Economic Growth ◽  
Credit Rating ◽  
Credit Ratings ◽  
Credit Rating Agencies ◽  
African Union ◽  
African Countries ◽  
Content Type ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Sovereign Credit Ratings

PurposeThis study is a comparative analysis of the magnitude of economic growth as a key determinant of long-term foreign currency sovereign credit ratings in 30 countries in Africa, Europe, Asia and Latin America from 2010 to 2018.Design/methodology/approachThe analysis applies the fixed effects (FE) and random effects (RE) panel least squares (PLS) models.FindingsThe authors find that the magnitude economic coefficients are marginally small for African countries compared to other developing countries in Asia, Europe and Latin America. Results of the probit and logit binary estimation models show positive coefficients for economic growth sub-factors for non-African countries (developing and developed) compared to negative coefficients for African countries.Practical implicationsThese findings mean that, an increase in economic growth in Africa does not significantly increase the likelihood that sovereign credit ratings will be upgraded. This implies that there is lack of uniformity in the application of the economic growth determinant despite the claims of a consistent framework by rating agencies. Thus, macroeconomic factors are relatively less important in determining country's risk profile in Africa than in other developing and developed countries.Originality/valueFirst, studies that investigate the accuracy of sovereign credit rating indicators and risk factors in Africa are rare. This study is a key literature at the time when the majority of African countries are exploring the window of sovereign bonds as an alternative funding model to the traditional concessionary borrowings from multilateral institutions. On the other hand, the persistent poor rating is driving the cost of sovereign bonds to unreasonably high levels, invariably threatening their hopes of diversifying funding options. Second, there is criticism that the rating assessments of the credit rating agencies are biased in favour of developed countries and there is a gap in literature on studies that explore the whether the credit rating agencies are biased against African countries. This paper thus explores the rationale behind the African Union Decision Assembly/AU/Dec.631 (XXVIII) adopted by the 28th Ordinary Session of the African Union held in Addis Ababa, Ethiopia in January 2017 (African Union, 2017), directing its specialized governance agency, the African Peer Review Mechanism (APRM), to provide support to its Member States in the field of international credit rating agencies. The Assembly of African Heads of State and Government highlight that African countries are facing the challenges of credit downgrades despite an average positive economic growth. Lastly, the paper makes contribution to the argument that the majority of African countries are unfairly rated by international credit rating agencies, raising a discussion of the possibility of establishing a Pan-African credit rating institution.

RESEARCH OF DEBT SECURITY OF UKRAINE

2016 ◽  
Vol 4 (2) ◽  
pp. 0-0
Author(s):  
Oksana Kardash
Keyword(s):  
Retrospective Analysis ◽  
Credit Rating ◽  
External Debt ◽  
Government Debt ◽  
National Debt ◽  
Sovereign Credit ◽  
Debt Security ◽  
Sovereign Credit Rating

On the basis of retrospective analysis of national debt in Ukraine its dynamics, structure is investigated; division of its development into periods is made. The regularities of Ukraine’s government debt have been identified and the basic tendencies of the internal and external debt have been shown. The sovereign credit rating of Ukraine has been investigated as a factor of debt security.

scholarly journals Failed Attempt to Break Up the Oligopoly in Sovereign Credit Rating Market after Financial Crises

2021 ◽  
Vol 15 (2) ◽  
pp. 152-163
Author(s):  
Alicja Malewska
Keyword(s):  
Financial Crises ◽  
Credit Rating ◽  
Global Financial Crisis ◽  
Debt Crisis ◽  
Credit Ratings ◽  
The United States ◽  
The European Union ◽  
Case Study Methodology ◽  
Sovereign Credit ◽  
Sovereign Credit Ratings

For decades, the credit rating market has been dominated by three major agencies (Moody's, S&P and Fitch Ratings). Their oligopolistic dominance is especially strong in sovereign credit ratings industry, where they hold a collective global share of more than 99%. Global financial crisis and the Eurozone sovereign debt crisis exposed serious flaws in rating process and forced public authorities to act. This study investigates effectiveness of new regulations adopted in the United States and in the European Union after financial crises in terms of reducing oligopolistic dominance of the “Big Three” in sovereign credit ratings market. The study applies descriptive statistical analysis of economic indicators describing concentration rate in a market, as well as content analysis of legal acts and case study methodology. Analysis shows that the Dodd-Frank reform and new European rules on supervision of credit rating agencies were not effective enough and did not lead to the increased competition in the market. The evidence from this study is explained using two alternative perspectives – economic theory of natural oligopoly and hegemonic stability theory coming from international relations field.

The geographical and income differences in the determinants of African sovereign credit ratings

2020 ◽  
Vol 11 (4) ◽  
pp. 609-624
Author(s):  
Ilse Botha ◽  
Marinda Pretorius
Keyword(s):  
Credit Rating ◽  
Credit Ratings ◽  
African Countries ◽  
Content Type ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Additional Information ◽  
Income Groups ◽  
Sovereign Credit Ratings ◽  
Developmental Indicators

PurposeThe importance of obtaining a sovereign credit rating from an agency is still underrated in Africa. Literature on the determinants of sovereign credit ratings in Africa is scarce. The purpose of this research is to determine what the determinants are for sovereign credit ratings in Africa and whether these determinants differ between regions and income groups.Design/methodology/approachA sample of 19 African countries' determinants of sovereign credit ratings are compared between 2007 and 2014 using a panel-ordered probit approach.FindingsThe findings indicated that the determinants of sovereign credit ratings differ between African regions and income groups. The developmental indicators were the most significant determinants across all income groups and regions. The results affirm that the identified determinants in the literature are not as applicable to African sovereigns, and that developmental variables and different income groups and regions are important determinants to consider for sovereign credit ratings in Africa.Originality/valueThe results affirm that the identified determinants in the literature are not as applicable to African sovereigns, and that developmental variables and different income groups and regions are important determinants to consider for sovereign credit ratings in Africa. Rating agencies follow the same rating assignment process for developed and developing countries, which means investors will have to supplement the allocated credit rating with additional information. Africa can attract more investment if African countries obtain formal, accurate sovereign credit ratings, which take the characteristics of the continent into consideration.

scholarly journals An analysis of Granger causality between sovereign credit rating and economic growth in Sub-Saharan Africa

2020 ◽  
Vol 17 (4) ◽  
pp. 85-93
Author(s):  
Misheck Mutize ◽  
Virimai V. Mugobo
Keyword(s):  
Economic Growth ◽  
Granger Causality ◽  
Foreign Currency ◽  
Credit Rating ◽  
Developing Economies ◽  
Credit Ratings ◽  
Sub Saharan Africa ◽  
Sovereign Credit ◽  
Sovereign Credit Ratings ◽  
Sub Saharan

Interest in the relationship between credit rating and economic growth is growing as emerging economies increasingly integrate into international financial markets. Without credit ratings, developing economies would not have been able to successfully issue their sovereign bonds to support economic growth. Therefore, this paper examines a causality relationship between Standard & Poor’s long-term foreign currency sovereign credit ratings and economic growth in 19 Sub-Saharan countries over the period from 2003 to 2018. The results of the Granger causality tests show a unidirectional causality from sovereign credit ratings to economic growth, not vice versa. This implies that economic growth is not significant in determining sovereign credit ratings. It can thus be concluded from these findings that sovereign credit ratings are proactive actions by rating agencies that are relevant in determining future economic growth. Thus, investors benefit from utilizing credit ratings to prevent inherent information asymmetry in fundamental economic factors. Therefore, it is important for policy makers to pay attention to sovereign credit ratings when formulating macroeconomic policies.

scholarly journals Sovereign credit ratings and CDS spreads in Emerging Europe

Equilibrium ◽  
2020 ◽  
Vol 15 (3) ◽  
pp. 419-438
Author(s):  
Łukasz Dopierała ◽  
Daria Ilczuk ◽  
Liwiusz Wojciechowski
Keyword(s):  
Financial Markets ◽  
Credit Rating ◽  
Global Financial Crisis ◽  
Credit Ratings ◽  
Value Added ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Sovereign Credit Ratings ◽  
The Impact

Research background: Sovereign credit ratings play an important role in determining any country’s access to the international debt market. During the global financial crisis and the European debt crisis, credit rating agencies were harshly criticized for the timing of their announcements regarding ratings downgrades and the ranges of those downgrades. Therefore, it is worth considering whether the sovereign credit rating is still a useful benchmark for investors. Purpose of the article: This article examines whether credit rating agencies still provide financial markets with new information about the solvency of governments in Emerging Europe countries. In addition, it describes the differences in the effect of particular types of rating events on financial markets and the impact of individual agencies on the market situation. Our study also focuses on evaluating these occurrences at different stages of the business cycle. Methods: This article uses data about ratings events that took place between 2008 and 2018 in 17 Emerging Europe economies. We took into consideration positive, neutral, and negative events related to ratings changes and the outlooks reported by Fitch Ratings, Moody’s, and Standard & Poor’s. We used a methodology based on event studies. In addition, we performed Wilcoxon signed-ranks test and used a logit model to determine the usefulness of cumulative adjusted credit default swap (CDS) spread changes in predicting the direction of ratings changes. Findings & Value added: Our research provides evidence that the CDS market reflects information regarding government issuers up to three months before ratings downgrades are announced. Information reported to the market by ratings agencies is only relevant in the short timeframe surrounding ratings downgrades and upgrades. However, positive credit rating changes convey more information to the market. We also found strong evidence that, in the post-crisis period, credit ratings provide markets with less information.

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