DOI: 10.1057/9781137391506.0001 Sovereign Debt and Credit Rating Bias
Also by David F. Tennant DEBT AND DEVELOPMENT IN SMALL ISLAND DEVELOPING STATES (coedited with Damien King, 2014) DOI: 10.1057/9781137391506.0001
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: 10.1057/9781137391506.0001
sovereign debt and credit rating bias Copyright David F. Tennant & Marlon R. Tracey, 2016. Softcover reprint of the hardcover 1st edition 2016 978 1 137 39710 2 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 1988. Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, 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 10004 1562. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. ISBN 978 1 349 67954 6 E-PDF ISBN: 978 1 137 39150 6 DOI 10.1057/9781137391506 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 785998, 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
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: 10.1057/9781137391506.0001
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: 10.1057/9781137391506.0001
List of Figures 4.1 Distribution of rating changes by levels of development 67 4.2 Distribution of rating changes by developing regions 68 4.3 Distribution of rating changes by development level by year for Moody s 68 4.4 Distribution of rating changes by development level by year for Fitch 68 4.5 Distribution of rating changes by development level by year for S&P 69 DOI: 10.1057/9781137391506.0002 vii
List of Tables 2.1 Comparison of indicators used by the big-three CRAs 25 2.2 Key empirical studies on the determinants of sovereign ratings 28 4.1 Distribution of rating categories for each rating 63 4.2 Regional distribution of sovereign ratings 64 4.3 Distribution of sovereign ratings by development level 65 4.4 Frequency distribution of rating changes 66 4.5 Comparison of odds of rating change across different country groupings 70 4.6 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 86 6.1 Estimation results thresholds varying by development level 98 6.2 Estimation results thresholds varying by developing regions 100 viii DOI: 10.1057/9781137391506.0003
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: 10.1057/9781137391506.0004 ix