Political institutions, economic uncertainty and sovereign credit ratings

Nelson R. Ramírez-Rondán, Renato M. Rojas-Rojas and Julio A. Villavicencio

Finance Research Letters, 2023, vol. 53, issue C

Abstract: Sovereign credit rating is an important factor for countries to access funds in the international bond market. First, we jointly analyzed political institutions and uncertainty as determinants of sovereign credit ratings; and second, we test whether the interaction between them matters. Using a sample of 71 countries from 2003 to 2020 for the major agencies Moody’s, Standard & Poor’s, and Fitch, we find that political institutions have a positive effect, whereas uncertainty has a negative effect, and their interaction is systematically negative. These results indicate that lower uncertainty could strengthen the positive effect of political institutions on sovereign credit ratings.

Keywords: Credit rating; Political institutions; Economic uncertainty; Panel data (search for similar items in EconPapers)
JEL-codes: C23 G24 H81 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:53:y:2023:i:c:s1544612323000302

DOI: 10.1016/j.frl.2023.103656

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