Discrepancy and cross-regional bias in sovereign credit ratings: Analyzing the role of public debt

Differences in sovereign ratings from major credit rating agencies (CRAs) generate debate among scientists and practitioners, with prior literature attributing these discrepancies to subjective factors. Using panel data from 70 countries from 2011 to 2018, we examine whether the observed heterogeneity in CRAs' ratings can be associated with cross-regional discrimination. While sovereign ratings among leading Western agencies, S&P, Moody's, and Fitch (the Big Three), are statistically similar, they significantly differ from their main Asian counterpart (Dagong). These differences appear to be driven by how these agencies value the role of public debt, as discrepancies are especially larger for countries with a public debt ratio beyond the estimated threshold of 52.86%. In addition, while the Big Three tend to disadvantage Latin American and Eastern European countries, Dagong tends to disadvantage Western countries, Eastern Europe, the Middle East, and North Africa. This suggests significant biases against geopolitical remoteness.