Elections, Opportunism, Partisanship and Sovereign Ratings in Developing Countries

17 Pages Posted: 8 May 2006

See all articles by Paul M. Vaaler

Paul M. Vaaler

University of Minnesota, Twin Cities - Law School and Carlson School of Management

Burkhard N. Schrage

Singapore Management University

Steven Block

Tufts University - The Fletcher School of Law and Diplomacy

Abstract

We empirically examine whether and how opportunistic and partisan political business cycle ("PBC") considerations explain election-period decisions by credit rating agencies ("agencies") publishing developing country sovereign risk-ratings ("ratings"). Analyses of 391 agency ratings for 19 countries holding 39 presidential elections from 1987-2000, initially suggest that elections themselves prompt rating downgrades consistent with opportunistic PBC considerations, that incumbents are all likely to implement election-period policies detrimental to post-election creditworthiness. But more refined analyses, integrating both opportunistic and partisan PBC considerations in a unified framework, suggest that election-period agency downgrades (upgrades) are more likely as right-wing (left-wing) incumbents, become more vulnerable to ouster by challengers. Together, these results underscore the importance of integrating both opportunistic and partisan PBC considerations into any explanation of election-period risk assessments of agencies and, perhaps, other private, foreign-based financial actors important to the pricing and allocation of capital for lending and investment in the developing world.

Suggested Citation

Vaaler, Paul M. and Schrage, Burkhard N. and Block, Steven, Elections, Opportunism, Partisanship and Sovereign Ratings in Developing Countries. Review of Development Economics, Vol. 10, No. 1, pp. 154-170, February 2006. Available at SSRN: https://ssrn.com/abstract=875924 or http://dx.doi.org/10.1111/j.1467-9361.2005.00307.x

Paul M. Vaaler (Contact Author)

University of Minnesota, Twin Cities - Law School and Carlson School of Management ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States
612-625-4951 (Phone)
612-626-1316 (Fax)

HOME PAGE: http://carlsonschool.umn.edu/faculty/paul-vaaler

Burkhard N. Schrage

Singapore Management University ( email )

50 Stamford Rd
Singapore, 178899
Singapore
+65 6828 0755 (Phone)
+65 6828 0777 (Fax)

HOME PAGE: http://www.business.smu.edu.sg/Faculty/management/burkhad_schrage.asp

Steven Block

Tufts University - The Fletcher School of Law and Diplomacy ( email )

Medford, MA 02155
United States
617-627-2717 (Phone)
617-627-3712 (Fax)

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