First-mover Disadvantage: The Sovereign Ratings Mousetrap

63 Pages Posted: 30 Mar 2021

See all articles by Patrycja Klusak

Patrycja Klusak

Bennett Institute for Public Policy, University of Cambridge; Norwich Business School

Moritz Kraemer

Senior Fellow

Huong Vu

Lecturer in Finance

Date Written: March 29, 2021


Using 102 sovereigns rated by the three largest credit rating agencies (CRA), S&P, Moody’s and Fitch between January 2000 and January 2019, we are the first to document that the first- mover CRA (S&P) in downgrades falls into a commercial trap. Namely, each sovereign downgrade by one notch by the first-mover CRA (S&P) results in 2.4% increase in the probability of a rating contract being cancelled by the sovereign client. The more downgrades S&P makes in a given month, the more their sovereign rating coverage falls relative to Moody’s. Our results are more pronounced for downgrades on small sovereign borrowers than on large sovereign borrowers. This paper explores the interaction between three themes of the literature: herding behaviour amongst CRAs, issues of conflict of interest and ratings quality.

Keywords: Sovereign credit ratings, herding behaviour, conflict of interest

JEL Classification: G15, G24

Suggested Citation

Klusak, Patrycja and Kraemer, Moritz and Vu, Huong, First-mover Disadvantage: The Sovereign Ratings Mousetrap (March 29, 2021). Available at SSRN: or

Patrycja Klusak (Contact Author)

Bennett Institute for Public Policy, University of Cambridge ( email )

First Floor
17 Mill Lane
Cambridge, CB2 1RX
Great Britain

Norwich Business School ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

HOME PAGE: http://

Moritz Kraemer

Senior Fellow

SOAS - University of London
School of Finance and Management, Thornhaugh Stree
London,, WC1H 0XG
United Kingdom

Huong Vu

Lecturer in Finance

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics