Hostname: page-component-cb9f654ff-d5ftd Total loading time: 0 Render date: 2025-08-07T03:43:06.010Z Has data issue: false hasContentIssue false
  • English
  • Français

The politics of creditworthiness: political and policy commentary in sovereign credit rating reports

Published online by Cambridge University Press:  06 February 2020

Zsófia Barta Open the ORCID record for Zsófia Barta [Opens in a new window]  and
Kristin Makszin
Zsófia Barta
Affiliation:
Department of Political Science, University of Albany, USA E-mail: zbarta@albany.edu
Kristin Makszin
Affiliation:
Leiden University College The Hague, Netherlands E-mail: k.m.makszin@luc.leidenuniv.nl
Get access Rights & Permissions [Opens in a new window]

Abstract

How much do politics and politically sensitive policy choices matter for sovereign credit ratings? We contend that while policy is consistently important for rating decisions, attention to politics varies with perceived uncertainty. Quantitatively analysing the text of 635 sovereign rating reports issued by Standard and Poor’s (S&P) between 1999 and 2012 for 40 European countries, we find that S&P scrutinises policy with similar intensity across countries, but political scrutiny was less intense in developed countries and prospective European Union members (categories formerly associated with lower uncertainty) than in emerging countries until the crisis dispelled illusions of lower uncertainty in these categories. Our findings nuance the common notion that financial market actors allow countries perceived to belong to low-risk categories more “room-to-move” in their political and policy choices, by showing that in rating decisions such permissiveness only applied to politics – but not to policy – and it ended with the global financial crisis.

Keywords

content analysis“golden straightjacket”political and policy constraintssovereign credit ratingssovereign rating reportsuncertainty and risk

Information

Type
Research Article
Information
Journal of Public Policy , Volume 41 , Issue 2 , June 2021 , pp. 307 - 330
Copyright
© The Author(s), 2020. Published by Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Abdelal, R and Blyth, M (2015) Just Who Put You in Charge? We Did: Credit Rating Agencies and the Politics of Ratings. In Cooley, A and Snyder, J (eds.), Ranking the World: Grading States as a Tool of Global Governance. Cambridge: Cambridge University Press, 39–59.CrossRefGoogle Scholar
Afonso, A (2003) Understanding the Determinants of Sovereign Debt Ratings. Journal of Economics and Finance, 27(1): 56–74.CrossRefGoogle Scholar
Afonso, A, Arghyrou, MG and Kontonikas, A (2015) The Determinants of Sovereign Bond Yield Spreads in the EMU. ECB Working Paper 1781.Google Scholar
Afonso, A, Gomes, P and Rother, P (2007) What ‘Hides’ Behind Sovereign Debt Ratings? ECB Working Paper Series (711).Google Scholar
Archer, CC, Biglaiser, G and DeRouen, K (2007) Sovereign Bonds and the Democratic Advantage: Does Regime Type Affect Credit Rating Agency Ratings in the Developing World?. International Organization, 61(2): 341–365.CrossRefGoogle Scholar
Barr, DJ, Levy, R, Scheepers, C and Tily, HJ (2013) Random Effects Structure for Confirmatory Hypothesis Testing: Keep It Maximal,. Journal of Memory and Language, 68(3): 255–278.CrossRefGoogle ScholarPubMed
Barta, Z and Johnston, A (2018) Rating Politics? Partisan Discrimination in Credit Ratings in Developed Economies. Comparative Political Studies, 15(5): 587–620.CrossRefGoogle Scholar
Barta, Z and Johnston, A (2019) Entitlements in the Crosshairs? How Sovereign Credit Ratings Shape Market Reactions to Policy Choice in Advanced Industrial Countries. Paper presented at the 29th Conference of Europeanists in Madrid.CrossRefGoogle Scholar
Barton, K (2019) MuMIn: Multi-Model Inference. R package version 1.43.6. https://CRAN.R-project.org/package=MuMIn.Google Scholar
Bates, D, Maechler, M, Bolker, B, and Walker, S (2015) Fitting Linear Mixed-Effects Models Using lme4. Journal of Statistical Software, 67(1): 1–48. doi:10.18637/jss.v067.i01.CrossRefGoogle Scholar
Beaulieu, E, Cox, GW and Saeigh, S (2012) Sovereign Debt and Regime Type: Reconsidering the Democratic Advantage. International Organization, 66(4): 709–738.CrossRefGoogle Scholar
Benoit, K and Herzog, A (2017) Text Analysis : Estimating Policy Preferences from Written and Spoken Words. In Bachner, J, Ginsberg, B and Wagner Hill, K (eds.), Analytics, Policy and Governance. New Haven: Yale University Press, 137–159.Google Scholar
Biglaiser, G and Staats, JL (2012) Finding the ‘Democratic Advantage’ in Sovereign Bond Ratings: The Importance of Strong Courts and the Rule of Law. International Organization, 66(3): 515–535.CrossRefGoogle Scholar
Brambor, T, Clark, W and Golder, M (2006) Understanding Interaction Models: Improving Empirical Analyses. Political Analysis, 14(1): 63–82.CrossRefGoogle Scholar
Breen, M and McMenamin, I (2013) Political Institutions, Credible Commitment, and Sovereign Debt in Advanced Economies International Studies Quarterly, 57(4): 842–854. doi:10.1111/isqu.12079.CrossRefGoogle Scholar
Brooks, SM, Cunha, R and Mosley, L (2015) Categories, Creditworthiness, and Contagion: How Investors’ Shortcuts Affect Sovereign Debt Markets. International Studies Quarterly, 59(3): 587–601.CrossRefGoogle Scholar
Bruner, CM and Abdelal, R (2005) To Judge Leviathan: Sovereign Credit Ratings, National Law, and the World Economy. Journal of Public Policy, 25(2): 191–217.CrossRefGoogle Scholar
Cantor, R and Packer, F (1996) Determinants and Impact of Sovereign Credit Rating. Economic Policy Review, 2(2): 37–53.Google Scholar
Carlin, W and Soskice, D (2009) German Economic Performance: Disentangling the Role of Supply-side Reforms, Macroeconomic Policy and Coordinated Economy Institutions. Socio-Economic Review, 7(1): 67–99.CrossRefGoogle Scholar
Carruthers, BG (2013) From Uncertainty Toward Risk: The Case of Credit Ratings. Socio-Economic Review, 11(3): 525–551.CrossRefGoogle Scholar
Cusack, T (1999) Partisan Politics and Fiscal Policy. Comparative Political Studies, 32(4): 464–486.CrossRefGoogle Scholar
Easterly, W and Rebelo, S (1993) Fiscal Policy and Economic Growth: An Empirical Investigation. NBER Working Paper No. 4499.CrossRefGoogle Scholar
Engen, EM and Skinner, J (1996) Taxation and Economic Growth. NBER Working Paper No. 5826.CrossRefGoogle Scholar
Feinerer, I and Hornik, K (2017) Tm: Text Mining Package (version 0.7-1). https://cran.r-project.org/web/packages/tm/index.html.Google Scholar
Feldstein, M (1986) Supply-side Economics Old Truths and New Claims. NBER Working Paper 1792.CrossRefGoogle Scholar
Fitch Ratings (2009) Sovereign Rating Methodology.Google Scholar
Fitch Ratings (2016) Sovereign Rating Methodology.Google Scholar
Garrett, G and Lange, P (1991) Political Responses to Interdependence: What’s Left For the Left? International Organization, 45(04): 539–564.CrossRefGoogle Scholar
Gray, J (2009) International Organization as a Seal of Approval: European Union Accession and Investor Risk. American Journal of Political Science, 53(4): 931–949.CrossRefGoogle Scholar
Gray, J (2013) The Company States Keep. International Economic Organization and Sovereign Risk in Emerging Markets. Cambridge: Cambridge University Press.Google Scholar
Haque, NU, Mathieson, N and Mark, DJ (1998) The Relative Importance of Political and Economic Variables in Creditworthiness Ratings. IMF Working Paper, WP/98/46.Google Scholar
International Monetary Fund (2010) The Uses and Abuses of Sovereign Credit Ratings. In Global Financial Stability Report. Washington, DC: International Monetary Fund, 85–123.Google Scholar
Kuznetsova, A, Brockhoff, P and Christensen, R (2017) lmerTest Package: Tests in Linear Mixed Effects Models. Journal of Statistical Software, 82(13): 1–26.CrossRefGoogle Scholar
Lenth, R (2019) emmeans: Estimated Marginal Means, aka Least-Squares Means. R Package Version 1.4.3.01. https://CRAN.R-project.org/package=emmeans.Google Scholar
Lucas, E (1990) Supply-Side Economics: An Analytical Review. Oxford Economic Papers, 42(2): 293–316.CrossRefGoogle Scholar
Luke, S (2017) Evaluating Significance in Linear Mixed-effects Models in R. Behavior Research Methods, 49(4): 1494–1502.CrossRefGoogle ScholarPubMed
Makszin, K, Medve-Bálint, G and Bohle, D (2020) North and South, East and West: Is It Possible to Bridge the Gap?. In Crespy, A, Coman, R and Schmidt, V (eds.), Governance and Politics in the Post-Crisis European Union. Cambridge: Cambridge University Press.Google Scholar
Moody’s (2008) Rating Methodology: Sovereign Bond Ratings.Google Scholar
Moody’s (2016) Rating Methodology: Sovereign Bond Ratings.Google Scholar
Mosley, L (2000) Room to Move: International Financial Markets and National Welfare States. International Organization, 54(4): 737–773.CrossRefGoogle Scholar
Mosley, L (2005) Globalisation and the State: Still Room to Move? New Political Economy, 10(3): 355–362.CrossRefGoogle Scholar
Paudyn, B (2013) Credit Rating Agencies and The Sovereign Debt Crisis: Performing the Politics of Creditworthiness Through Risk and Uncertainty. Review of International Political Economy, 20(4): 788–818.CrossRefGoogle Scholar
Potrafke, N (2009) Did Globalization Restrict Partisan Politics? An Empirical Evaluation of Social Expenditures in a Panel of OECD Countries. Public Choice 140: 105. doi:10.1007/s11127-009-9414-2.CrossRefGoogle Scholar
Rodrik, D (2000) How Far Will International Economic Integration Go?. Journal of Economic Perspectives, 14(1): 177–186.CrossRefGoogle Scholar
Rodrik, D (2011) The Globalization Paradox: Why Global Markets, States, and Democracy Can’t Coexist. Oxford: Oxford University Press.Google Scholar
Ross, F (2000) ‘Beyond Left and Right’: The New Partisan Politics of Welfare. Governance World Politics, 13(2): 155–183. doi:10.1111/0952-1895.00127.Google Scholar
Sattler, T (2013) Do Markets Punish Left Governments?. The Journal of Politics, 75(2): 343–356.CrossRefGoogle Scholar
Sinclair, TJ (2005) The New Masters of Capital. Ithaca, NY: Cornell University Press.Google Scholar
Standard and Poor’s (2006) Sovereign Credit Ratings: A Primer.Google Scholar
Standard and Poor’s (2009) Understanding Standard & Poor’s Rating Definitions.Google Scholar
Standard and Poor’s (2013) Sovereign Government Rating Methodology And Assumptions.Google Scholar
Standard and Poor’s (2016) Rating Stability Criteria.Google Scholar
Strange, S (1996) The Retreat of the State: The Diffusion of Power in the World Economy. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Streeck, W (2014) Buying Time: The Delayed Crisis of Democratic Capitalism. London and Brooklyn: Verso Books.Google Scholar
Vaaler, PM, Schrage, BN and Block, SA (2006) Elections, Opportunism, Partisanship and Sovereign Ratings in Developing Countries. Review of Development Economics, 10(1): 154–170.CrossRefGoogle Scholar
Supplementary material: Link

Barta and Makszin Dataset

Dataset

https://doi.org/10.7910/DVN/FYXNIM
Link
Supplementary material: File

Barta and Makszin supplementary material

Appendix

Download Barta and Makszin supplementary material(File)
File 10.4 MB