Do Credit Rating Agencies Influence Elections?

61 Pages Posted: 18 Mar 2016 Last revised: 17 Aug 2020

See all articles by Igor Cunha

Igor Cunha

University of Kentucky

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Rui Silva

NOVA School of Business and Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: January 3, 2019

Abstract

We show that credit rating agencies can influence political elections. We find that incumbent political parties experience an increase in their vote shares following municipal bond upgrades. The evidence is consistent with rating agencies affecting elections indirectly through an expansion of local governments' debt capacity and directly through an impact on voters' perceptions of the quality of incumbent politicians. To identify these effects, we examine elections outcomes within neighboring counties by exploiting exogenous variation in municipal bond ratings due to Moody's recalibration of its scale in 2010.

Keywords: Elections, Credit ratings, Financial constraints, Municipal bonds, Government spending, Economic conditions

JEL Classification: D72, G24, H74

Suggested Citation

Cunha, Igor and Ferreira, Miguel Almeida and Silva, Rui, Do Credit Rating Agencies Influence Elections? (January 3, 2019). Available at SSRN: https://ssrn.com/abstract=2748458 or http://dx.doi.org/10.2139/ssrn.2748458

Igor Cunha

University of Kentucky ( email )

Gatton College of Business and Economics
550 S. Limestone
Lexington, KY 40526
United States
859-257-5703 (Phone)

Miguel Almeida Ferreira (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Rui Silva

NOVA School of Business and Economics ( email )

Rua da Holanda, no. 1
Carcavelos, 2775-405
Portugal

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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