Elections, Opportunism, Partisanship and Sovereign Ratings in Developing Countries

Elections, Opportunism, Partisanship and Sovereign Ratings in Developing Countries We empirically examine whether and how opportunistic and partisan political business cycle (“PBC”) considerations explain election‐period decisions by credit rating agencies (“agencies”) publishing developing country sovereign risk‐ratings (“ratings”). Analyses of 391 agency ratings for 19 countries holding 39 presidential elections from 1987–2000, initially suggest that elections themselves prompt rating downgrades consistent with opportunistic PBC considerations, that incumbents are all likely to implement election‐period policies detrimental to post‐election creditworthiness. But more refined analyses, integrating both opportunistic and partisan PBC considerations in a unified framework, suggest that election‐period agency downgrades (upgrades) are more likely as right‐wing (left‐wing) incumbents, become more vulnerable to ouster by challengers. Together, these results underscore the importance of integrating both opportunistic and partisan PBC considerations into any explanation of election‐period risk assessments of agencies and, perhaps, other private, foreign‐based financial actors important to the pricing and allocation of capital for lending and investment in the developing world. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Development Economics Wiley

Elections, Opportunism, Partisanship and Sovereign Ratings in Developing Countries

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Publisher
Wiley
Copyright
Copyright © 2006 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1363-6669
eISSN
1467-9361
DOI
10.1111/j.1467-9361.2005.00307.x
Publisher site
See Article on Publisher Site

Abstract

We empirically examine whether and how opportunistic and partisan political business cycle (“PBC”) considerations explain election‐period decisions by credit rating agencies (“agencies”) publishing developing country sovereign risk‐ratings (“ratings”). Analyses of 391 agency ratings for 19 countries holding 39 presidential elections from 1987–2000, initially suggest that elections themselves prompt rating downgrades consistent with opportunistic PBC considerations, that incumbents are all likely to implement election‐period policies detrimental to post‐election creditworthiness. But more refined analyses, integrating both opportunistic and partisan PBC considerations in a unified framework, suggest that election‐period agency downgrades (upgrades) are more likely as right‐wing (left‐wing) incumbents, become more vulnerable to ouster by challengers. Together, these results underscore the importance of integrating both opportunistic and partisan PBC considerations into any explanation of election‐period risk assessments of agencies and, perhaps, other private, foreign‐based financial actors important to the pricing and allocation of capital for lending and investment in the developing world.

Journal

Review of Development EconomicsWiley

Published: Feb 1, 2006

References

  • Multiparty Competition, Founding Elections and Political Business Cycles in Africa
    Block, Block; Singh, Singh; Ferree, Ferree
  • Sovereign Credit Ratings
    Cantor, Cantor; Packer, Packer
  • Sovereign Risk Assessment and Agency Credit Ratings
    Cantor, Cantor; Packer, Packer
  • Left‐Right Party Ideology and Government Policies
    Imbeau, Imbeau; Pétry, Pétry; Lamari, Lamari
  • The Political Economy of Speculative Attacks in the Developing World
    Leblang, Leblang

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