| Publication |
2007.
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| Summary/Abstract |
The importance of sovereign bond ratings has grown recently as assessments by credit rating agencies (CRAs) influence the cost of capital. Understanding how CRAs determine country ratings is difficult based on the secretive nature of these agencies. Controlling for the common explanations in the literature, we use panel data and interviews to investigate the role of the "democratic advantage" and other determinants on bond ratings set by Moody's Investor Services, Standard and Poor's, and Fitch Ratings for fifty developing countries from 1987 to 2003. We find that regime type and most other political factors have little effect on bond raters. Instead, trade, inflation, growth, and bond default strongly affect sovereign ratings. The message for policymakers in developing countries is that factors that support bond repayment are most useful for enhancing CRA ratings
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