Politicians’ connections and sovereign credit ratings

Klusak, Patrycja, Uymaz, Yurtsev and Alsakka, Rasha (2024) Politicians’ connections and sovereign credit ratings. Journal of International Financial Markets, Institutions & Money, 94. ISSN 1042-4431

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Abstract

Using a unique hand-collected sample of professional connections between finance ministers and the top executives of the three largest credit rating agencies (CRAs) for 38 European sovereigns between January 2000 and November 2017, we show that professional connections result in higher sovereign ratings. This finding is attributed to ‘favoritism’, which stems from the conflict-of-interest problem in the CRA business model. We also find that the subjective component of ratings, captured by professional connections, has a more pronounced role for developing than developed countries. Our study offers new empirical evidence that unsolicited sovereign ratings are significantly lower than solicited ratings. Our results survive battery of robustness checks including propensity score matching (PSM), two-way fixed-effects, system GMM and various definitions of connection. Our findings offer wide-ranging implications for regulators, governments, market participants and CRAs.

Item Type: Article
Uncontrolled Keywords: professional connections,rating solicitation,sovereign credit ratings,finance,economics and econometrics ,/dk/atira/pure/subjectarea/asjc/2000/2003
Faculty \ School: Faculty of Social Sciences > Norwich Business School
University of East Anglia Research Groups/Centres > Theme - ClimateUEA
UEA Research Groups: Faculty of Social Sciences > Research Centres > Centre for Competition Policy
Faculty of Social Sciences > Research Groups > Finance Group
Related URLs:
Depositing User: LivePure Connector
Date Deposited: 01 Jul 2024 09:32
Last Modified: 12 Jul 2024 01:42
URI: https://ueaeprints.uea.ac.uk/id/eprint/95712
DOI: 10.1016/j.intfin.2024.102022

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