Sovereign Debt and Sustainable Development Culture
27 Pages Posted: 20 Jul 2013 Last revised: 28 Nov 2013
Date Written: July 18, 2013
The sovereign debt crisis indicated that conventional methods of assessing sovereign debt might need to be extended with new information sets. One of this new information sets could be indicators of a sustainability focused national culture based on social, environmental and political issues. This paper examines the relationship between government bond yields and the longest established rating of national sustainability culture: the "oekom country rating" of oekom research AG, which was launched in 2001. We hypothesize that sustainability culture reduces government bond yields. Based on an eleven year sample (2002-2012) and controlling for traditional economic determinants of bond yields, we find a negative and significant relationship between sovereign debt and sustainability culture. This implies that institutional investors might want to consider sustainability related information in their sovereign fixed income investment decisions. Similarly, conventional raters of sovereign debt (i.e. Fitch, Moody’s and S&P) might want to extend their consideration of sustainability culture in their ratings.
Keywords: sovereign debt, sustainability culture indicators, government bond yield
JEL Classification: E43, E44, Q01
Suggested Citation: Suggested Citation