DOI: / Sovereign Debt and Credit Rating Bias

Transcription

1 DOI: / Sovereign Debt and Credit Rating Bias

2 Also by David F. Tennant DEBT AND DEVELOPMENT IN SMALL ISLAND DEVELOPING STATES (coedited with Damien King, 2014) DOI: /

3 Sovereign Debt and Credit Rating Bias David F. Tennant Professor of Development Finance and Associate Dean, University of the West Indies, Mona, Jamaica and Marlon R. Tracey Doctoral Student, Binghamton University, State University of New York, USA DOI: /

4 sovereign debt and credit rating bias Copyright David F. Tennant & Marlon R. Tracey, Softcover reprint of the hardcover 1st edition All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission. In accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6-10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published 2016 by PALGRAVE MACMILLAN The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of Nature America, Inc., One New York Plaza, Suite 4500 New York, NY Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. ISBN E-PDF ISBN: DOI / Distribution in the UK, Europe and the rest of the world is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Library of Congress Cataloging-in-Publication Data is available from the Library of Congress A catalog record for this book is available from the Library of Congress A catalogue record for the book is available from the British Library

5 To Sandria, Sean and Elia who light up my world, and my Heavenly Father who lights my path David To Tannia, for her sustained love and support, and to my Father above, for His unrelenting blessings Marlon DOI: /

6 Contents List of Figures List of Tables Acknowledgments 1 Credit Rating Agencies as Gatekeepers 1 2 Establishing the Determinants of Sovereign Debt Ratings: Is There Really Room for Bias? 15 3 Resilience in Spite of Controversy: Conditions for Bias in the Credit Rating Industry 36 4 Trends in Sovereign Debt Ratings: Are There any Preliminary Signs of Bias? 61 5 Introducing Greater Rigor Methodological Approach 76 6 Are Poorer Countries Disadvantaged by the CRAs? Empirically Establishing a Bias 87 7 Now That We Have Found Bias, What Are We Going to Do with It? 103 References 115 Index 123 vii ix x vi DOI: /

7 List of Figures 4.1 Distribution of rating changes by levels of development Distribution of rating changes by developing regions Distribution of rating changes by development level by year for Moody s Distribution of rating changes by development level by year for Fitch Distribution of rating changes by development level by year for S&P 69 DOI: / vii

8 List of Tables 2.1 Comparison of indicators used by the big-three CRAs Key empirical studies on the determinants of sovereign ratings Distribution of rating categories for each rating Regional distribution of sovereign ratings Distribution of sovereign ratings by development level Frequency distribution of rating changes Comparison of odds of rating change across different country groupings Selected economic fundamentals by development level and developing regions 72 A4.1 List of sample sovereigns by development level, developing region and rating agency 74 A5.1 Description of variables and their sources 85 A5.2 Simple descriptive statistics Estimation results thresholds varying by development level Estimation results thresholds varying by developing regions 100 viii DOI: /

9 Acknowledgments We offer our heartfelt appreciation to everyone who assisted directly or indirectly in the completion of this book. Our research assistants, Francien Bailey, Sherna Morris, Kaymara Barrett and Altricia Dawson, for their tireless effort at the start of this project. Our project manager, Altricia Dawson, who saw us through to the end of the project. Our wives, Sandria and Tannia, who consistently offered their patient support and advice. The University of the West Indies, our academic home. Our publisher, Palgrave Macmillan. DOI: / ix

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