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Democratization’s Risk Premium: Partisan and Opportunistic Political Business Cycle Effects on Sovereign Ratings in Developing Countries Author info | Abstract | Publisher info | Download info | Related research | Statistics Steven Block ()
Burkhard N. Schrage ()
Paul M. Vaaler ()
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We use partisan and opportunistic political business cycle (“PBC”) considerations to develop a framework for explaining election-period decisions by credit rating agencies (“agencies”) publishing developing country sovereign risk-ratings (“ratings”). We test six hypotheses derived from the framework with 482 agency ratings for 19 countries holding 39 presidential elections from 1987-2000. We find that ratings are linked to the partisan orientation of incumbents facing election and to expectations of incumbent victory. Consistent with the framework, rating effects are sometimes greater for right-wing compared to left-wing incumbents, perhaps, because partisan PBC considerations with right-wing (left-wing) incumbents reinforce (counteract) opportunistic PBC considerations.
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Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number
546.
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Length: 40 pages
Date of creation: 01 Feb 2003Date of revision:
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Keywords: economics ; elections ; developing countries ; ratings ; Other versions of this item:
Find related papers by JEL classification: D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior F30 - International Economics - - International Finance - - - General F34 - International Economics - - International Finance - - - International Lending and Debt Problems G12 - Financial Economics - - General Financial Markets - - - Asset Pricing G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies G15 - Financial Economics - - General Financial Markets - - - International Financial Markets G29 - Financial Economics - - Financial Institutions and Services - - - Other
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