The differential impact of political risk factors on emerging market bond spreads and credit rating outlooks

Ralph Sonenshine and Sapna Kumari

Journal of Economics and Business, 2022, vol. 120, issue C, No S0148619522000224

Abstract: It is well established that sovereign bond spreads vary with changes in financial conditions and political risk factors. What is less evident is the differential impact of political risk factors relative to the financial conditions of emerging market (EM) countries. This paper fills this gap by analyzing how changes in political risk overall and political risk components impact EM bond spreads and credit ratings. We find that improving political risk factors lowers sovereign bond spreads and improves credit rating outlooks. However, the effect varies by type of political risk. Also, the impact varies by type of EM country, with more of the impact of political risk components affecting higher financial risk countries.

Keywords: Credit ratings; Corruption; Political risk; Government stability; Law and order; Conflict; Institutions; Democracy; Bond spreads (search for similar items in EconPapers)
JEL-codes: F3 F5 G11 G12 G15 G18 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:120:y:2022:i:c:s0148619522000224

DOI: 10.1016/j.jeconbus.2022.106066

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