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Financial centre bias in sub-sovereign credit ratings

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  • Ioannou, Stefanos
  • Wójcik, Dariusz
  • Pažitka, Vladimír

Abstract

We investigate whether credit rating agencies are biased towards areas with strong financial centre characteristics, using data for 259 areas from 39 countries for 2004–17. We employ a range of measurements of financial centre characteristics, including a financial centre index, the share of financial and business services in an area’s total employment, and revenues from investment banking. For all financial centre proxies, our results confirm the existence of a ‘financial centre bias’ that is statistically and economically significant. For example, cities present in the global financial centre index have a rating about a category higher than would be justified by fundamentals.

Suggested Citation

  • Ioannou, Stefanos & Wójcik, Dariusz & Pažitka, Vladimír, 2021. "Financial centre bias in sub-sovereign credit ratings," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:intfin:v:70:y:2021:i:c:s1042443120301451
    DOI: 10.1016/j.intfin.2020.101261
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    More about this item

    Keywords

    Sub-sovereign credit ratings; Financial centres; Orderedprobit model; Panel data; Cultural proximity; Behavioural bias;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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