The Home Bias in Sovereign Ratings

Andreas Fuchs and Kai Gehring
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Kai Gehring: Heidelberg University

No 179, Courant Research Centre: Poverty, Equity and Growth - Discussion Papers from Courant Research Centre PEG

Abstract: Credit rating agencies are frequently criticized for producing biased sovereign ratings. This article discusses how the home country of rating agencies could affect rating decisions as a result of political economy influences and cultural distance. Using data from nine agencies based in six countries, we test whether agencies assign better ratings to their home countries, as well as to countries economically, geopolitically and culturally aligned with them. Our results show biases in favor of the respective home country, culturally more similar countries, and countries in which home‐country banks have a larger risk exposure. Linguistic similarity seems to be the main transmission channel that explains the advantage of the home country.

Keywords: Sovereign debt ratings; credit rating agencies; home bias; international finance; cultural distance; bank exposure (search for similar items in EconPapers)
JEL-codes: F34 F65 G15 G24 H63 (search for similar items in EconPapers)
Date: 2015-06-26
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Related works:
Journal Article: The Home Bias in Sovereign Ratings (2017)
Working Paper: The Home Bias in Sovereign Ratings (2014)
Working Paper: The Home Bias in Sovereign Ratings (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:got:gotcrc:179

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