Democratization's Risk Premium: Partisan and Opportunistic Political Business Cycle Effects on Sovereign Ratings in Developing Countries
40 Pages Posted: 11 May 2003
Date Written: February 2003
We use partisan and opportunistic political business cycle "PBC" considerations to develop a framework for explaining election-period decisions by credit rating agencies "agencies" publishing developing country sovereign risk-ratings "ratings". We test six hypotheses derived from the framework with 482 agency ratings for 19 countries holding 39 presidential elections from 1987-2000. We find that ratings are linked to the partisan orientation of incumbents facing election and to expectations of incumbent victory. Consistent with the framework, rating effects are sometimes greater for right-wing compared to left-wing incumbents, perhaps, because partisan PBC considerations with right-wing (left-wing) incumbents reinforce (counteract) opportunistic PBC considerations.
Keywords: Economics, Elections, Developing Countries, Ratings
JEL Classification: D72, F30, F34, G12, G14, G15, G29
Suggested Citation: Suggested Citation