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Political institutions, economic uncertainty and sovereign credit ratings

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  • Ramírez-Rondán, Nelson R.
  • Rojas-Rojas, Renato M.
  • Villavicencio, Julio A.

Abstract

Sovereign credit rating is an important factor for countries to access funds in the international bond market. First, we jointly analyzed political institutions and uncertainty as determinants of sovereign credit ratings; and second, we test whether the interaction between them matters. Using a sample of 71 countries from 2003 to 2020 for the major agencies Moody’s, Standard & Poor’s, and Fitch, we find that political institutions have a positive effect, whereas uncertainty has a negative effect, and their interaction is systematically negative. These results indicate that lower uncertainty could strengthen the positive effect of political institutions on sovereign credit ratings.

Suggested Citation

  • Ramírez-Rondán, Nelson R. & Rojas-Rojas, Renato M. & Villavicencio, Julio A., 2023. "Political institutions, economic uncertainty and sovereign credit ratings," Finance Research Letters, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:finlet:v:53:y:2023:i:c:s1544612323000302
    DOI: 10.1016/j.frl.2023.103656
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    More about this item

    Keywords

    Credit rating; Political institutions; Economic uncertainty; Panel data;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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