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Elections, Opportunism, Partisanship and Sovereign Ratings in Developing Countries

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Author Info
Paul M. Vaaler
Burkhard N. Schrage
Steven A. Block

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Abstract

We empirically examine whether and how opportunistic and partisan political business cycle ("PBC") considerations explain election-period decisions by credit rating agencies ("agencies") publishing developing country sovereign risk-ratings ("ratings"). Analyses of 391 agency ratings for 19 countries holding 39 presidential elections from 1987-2000, initially suggest that elections themselves prompt rating downgrades consistent with opportunistic PBC considerations, that incumbents are all likely to implement election-period policies detrimental to post-election creditworthiness. But more refined analyses, integrating both opportunistic and partisan PBC considerations in a unified framework, suggest that election-period agency downgrades (upgrades) are more likely as right-wing (left-wing) incumbents, become more vulnerable to ouster by challengers. Together, these results underscore the importance of integrating both opportunistic and partisan PBC considerations into any explanation of election-period risk assessments of agencies and, perhaps, other private, foreign-based financial actors important to the pricing and allocation of capital for lending and investment in the developing world. Copyright © 2006 The Authors; Journal compilation © 2006 Blackwell Publishing Ltd.

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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Development Economics.

Volume (Year): 10 (2006)
Issue (Month): 1 (02)
Pages: 154-170
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Handle: RePEc:bla:rdevec:v:10:y:2006:i:1:p:154-170

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  1. Vaaler, Paul M., 2006. "Electoral Politics and Foreign Project Investment in Developing Countries," Working Papers 06-0125, University of Illinois at Urbana-Champaign, College of Business. [Downloadable!]
  2. Vaaler, Paul M. & James, Barclay E. & Aguilera, Ruth V., 2006. "Risk and Capital Structure in Asian Project Finance," Working Papers 06-0127, University of Illinois at Urbana-Champaign, College of Business. [Downloadable!]
  3. Paul Vaaler & Barclay James & Ruth Aguilera, 2008. "Risk and capital structure in Asian project finance," Asia Pacific Journal of Management, Springer, vol. 25(1), pages 25-50, January. [Downloadable!] (restricted)
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