Can Credit Rating Agencies Affect Election Outcomes?

62 Pages Posted: 17 Nov 2017

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

London Business School - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: November 2017

Abstract

We show that credit rating agency actions can have a significant effect on elections. We identify these effects by exploiting exogenous variation in municipal bond ratings due to Moody's recalibration of its scale in 2010. We find that incumbent politicians in upgraded municipalities experienced an increased likelihood of reelection and higher vote shares. Rating upgrades affect elections by improving voter perceptions of the quality of incumbents, and by producing wealth effects through voters' holdings of municipal bonds. We also establish a link between incumbents' reelection prospects and the improvements in economic conditions that are due to a debt-financed increase in government spending following rating upgrades.

Keywords: Credit ratings, Economic Conditions, elections, Financial constraints, government spending, Municipal Bonds

JEL Classification: D72, G24, H74

Suggested Citation

Cunha, Igor and Ferreira, Miguel Almeida and Silva, Rui, Can Credit Rating Agencies Affect Election Outcomes? (November 2017). CEPR Discussion Paper No. DP12430. Available at SSRN: https://ssrn.com/abstract=3071062

Igor Cunha (Contact Author)

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

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Rui Silva

London Business School - Department of Finance ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

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