Pernicious effects: How the credit rating agencies disadvantage emerging markets

Prabesh Luitel (), Rosanne Vanpée and Lieven De Moor

Research in International Business and Finance, 2016, vol. 38, issue C, 286-298

Abstract: This paper provides a synthesis of the literature on biases in sovereign credit ratings. Credit rating agencies favor their home countries and the homes of their major shareholders to the detriment of foreign countries. These home and foreign biases have multiple sources, each of which is especially at the disadvantage of emerging markets. While the characteristics of emerging debt markets make these countries particularly vulnerable to a downward bias in their sovereign credit rating, the consequences of a bad rating are especially severe here. A low credit rating increases borrowing costs, hampers access to international capital markets and inflates risk.

Keywords: Credit ratings; Credit rating agencies; Emerging markets; International financial markets; Home bias (search for similar items in EconPapers)
JEL-codes: E44 G15 G24 O16 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:38:y:2016:i:c:p:286-298

DOI: 10.1016/j.ribaf.2016.04.009

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