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Finding the “Democratic Advantage” in Sovereign Bond Ratings: The Importance of Strong Courts, Property Rights Protection, and the Rule of Law

Published online by Cambridge University Press:  13 July 2012

Glen Biglaiser  and
Joseph L. Staats
Glen Biglaiser
Affiliation:
Texas Tech University, Lubbock. E-mail: gbiglais@yahoo.com
Joseph L. Staats
Affiliation:
University of Minnesota, Duluth. E-mail: jstaats@d.umn.edu
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Abstract

Much scholarship in the political economy literature has investigated the influence of the democratic advantage on sovereign bond ratings by credit rating agencies (CRAs). Missing from earlier work, however, is inquiry into the effects on bond ratings of factors that lower political risk, such as adherence to the rule of law, the presence of a strong and independent judicial system, and protection of property rights. Using panel data for up to thirty-six developing countries from 1996 to 2006, we find that rule of law, strong and independent courts, and protection of property rights have significant positive effects on bond ratings. Policymakers wanting to obtain higher bond ratings and increased revenue from bond sales would do well to heed the message contained in these findings.

Type
Research Note
Information
International Organization , Volume 66 , Issue 3 , July 2012 , pp. 515 - 535
Copyright
Copyright © The IO Foundation 2012

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