The big three rating agencies and the question of objectivity in sovereign ratings
(2014) NEKN01 20141Department of Economics
- Abstract
- The big three American-based rating agencies Standard & Poor’s, Moody’s and Fitch are frequently accused of pursuing their sovereign ratings in the interest of their home country – the United States. Since these agencies have crucial influence on the financing costs of countries and share the sovereign rating market in an oligopoly structure, the question of independence is of crucial importance. The present paper investigates this question empirically. I use a linear panel data model and – as the main specification – a random effect ordered probit model. It is being checked for variables representing the national interest of the USA, hereby controlling for the actual determinants of sovereign rating. In the main specification I find that... (More)
- The big three American-based rating agencies Standard & Poor’s, Moody’s and Fitch are frequently accused of pursuing their sovereign ratings in the interest of their home country – the United States. Since these agencies have crucial influence on the financing costs of countries and share the sovereign rating market in an oligopoly structure, the question of independence is of crucial importance. The present paper investigates this question empirically. I use a linear panel data model and – as the main specification – a random effect ordered probit model. It is being checked for variables representing the national interest of the USA, hereby controlling for the actual determinants of sovereign rating. In the main specification I find that on average Moody’s and Fitch award a significantly better rating to the USA. In addition, across the agencies countries holding a higher share of American bank exposure get a better rating. Other home bias variables show significance, too. This outcome partly confirms the results of Fuchs and Gehring (2013) and calls for further regulatory actions on the structure of the sovereign rating market. (Less)
- Popular Abstract
- The big three American-based rating agencies Standard & Poor’s, Moody’s and Fitch are frequently accused of pursuing their sovereign ratings in the interest of their home country – the United States. Since these agencies have crucial influence on the financing costs of countries and share the sovereign rating market in an oligopoly structure, the question of independence is of crucial importance. The present paper investigates this question empirically. I use a linear panel data model and – as the main specification – a random effect ordered probit model. It is being checked for variables representing the national interest of the USA, hereby controlling for the actual determinants of sovereign rating. In the main specification I find that... (More)
- The big three American-based rating agencies Standard & Poor’s, Moody’s and Fitch are frequently accused of pursuing their sovereign ratings in the interest of their home country – the United States. Since these agencies have crucial influence on the financing costs of countries and share the sovereign rating market in an oligopoly structure, the question of independence is of crucial importance. The present paper investigates this question empirically. I use a linear panel data model and – as the main specification – a random effect ordered probit model. It is being checked for variables representing the national interest of the USA, hereby controlling for the actual determinants of sovereign rating. In the main specification I find that on average Moody’s and Fitch award a significantly better rating to the USA. In addition, across the agencies countries holding a higher share of American bank exposure get a better rating. Other home bias variables show significance, too. This outcome partly confirms the results of Fuchs and Gehring (2013) and calls for further regulatory actions on the structure of the sovereign rating market. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/4588955
- author
- Fuchs, Philipp LU
- supervisor
-
- Klas Fregert LU
- organization
- course
- NEKN01 20141
- year
- 2014
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Credit rating agencies, sovereign rating, home bias, random effect ordered probit model
- language
- English
- id
- 4588955
- date added to LUP
- 2014-09-22 11:44:10
- date last changed
- 2014-09-22 11:44:10
@misc{4588955,
abstract = {{The big three American-based rating agencies Standard & Poor’s, Moody’s and Fitch are frequently accused of pursuing their sovereign ratings in the interest of their home country – the United States. Since these agencies have crucial influence on the financing costs of countries and share the sovereign rating market in an oligopoly structure, the question of independence is of crucial importance. The present paper investigates this question empirically. I use a linear panel data model and – as the main specification – a random effect ordered probit model. It is being checked for variables representing the national interest of the USA, hereby controlling for the actual determinants of sovereign rating. In the main specification I find that on average Moody’s and Fitch award a significantly better rating to the USA. In addition, across the agencies countries holding a higher share of American bank exposure get a better rating. Other home bias variables show significance, too. This outcome partly confirms the results of Fuchs and Gehring (2013) and calls for further regulatory actions on the structure of the sovereign rating market.}},
author = {{Fuchs, Philipp}},
language = {{eng}},
note = {{Student Paper}},
title = {{The big three rating agencies and the question of objectivity in sovereign ratings}},
year = {{2014}},
}