Sovereign Ratings and National Culture

Whether sovereign governments default in part depends upon their willingness to pay and this in turn may depend on national culture. National culture may also affect capacity to pay and the assessment by rating analysts of sovereign risk. We therefore argue that culture affects ratings and empirically test the effects of culture on levels and changes in sovereign ratings. Levels and changes in sovereign ratings have traditionally been modelled in terms of macro-economic variables, rating outlook and rating history. The addition of culture variables to such models significantly improves the models’ fit to the data.