Sovereign credit ratings: Discovering unorthodox factors and variables

The presence of different rating agencies and nuanced viewpoints on the determinants of sovereign credit ratings has led to convoluted and contested narratives; hence a need to arrive at common ground on both the significant and prioritised factors important in sovereign rating assessments. Furthermore, much research has focused on a regression analysis of variables which were determined as important to sovereign ratings on an a priori theoretical basis, while excluding a factor analysis which integrates variables within a multifaceted framework. This paper argues that the variables used in existing research are subject to a priori theoretical selection rather than being selected empirically. There has also been an insufficient utilisation of rating agencies' methodology papers in assisting with the selection of variables, and a lack of analysis of the rating agencies' application of factors. Hence, this paper unearths both new factors and variables relevant to assessing sovereign ratings. The findings suggest that there needs to be a broadened understanding of indicators used to analyse and assign sovereign ratings, and a prioritisation of analysed aspects following the inclusion of unorthodox factors and variables.