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Towards a new MFF - New priorities and their impact on Italy

Author

Listed:
  • Gros, Daniel
  • Barci, Giovanni
  • N��ez Ferrer, Jorge

Abstract

Using 102 sovereigns rated by the three largest credit rating agencies (CRA), S&P, Moody�s and Fitch between January 2000 and January 2019, we are the first to document that the first mover CRA (S&P) in downgrades falls into a commercial trap. Namely, each first-mover downgrade by one notch by S&P results in a 2.4% increase in the probability of a rating contract being cancelled by the sovereign client, and a 1.2% decrease in the ratio of S&P�s sovereign rating coverage relative to Moody�s. The more first-mover downgrades S&P makes, the more their sovereign rating coverage declines relative to Moody�s. This paper interrelates three themes of the literature: herding behaviour amongst CRAs, issues of conflict of interest and ratings quality.

Suggested Citation

  • Gros, Daniel & Barci, Giovanni & N��ez Ferrer, Jorge, 2020. "Towards a new MFF - New priorities and their impact on Italy," CEPS Papers 26492, Centre for European Policy Studies.
    • Handle: RePEc:eps:cepswp:26492
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    File URL: https://cdn.ceps.eu/wp-content/uploads/2020/02/CEPS-MFF-2021-2027_LUISS-final.pdf
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    More about this item

    Keywords

    Sovereign credit ratings; herding behaviour; conflict of interest JEL classification: G15; G24;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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