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Do Credit Rating Agencies Influence Elections?
[The economic effects of public financing: evidence from municipal bond ratings recalibration]

Author

Listed:
  • Igor Cunha
  • Miguel A Ferreira
  • Rui C Silva

Abstract

We show that credit rating agencies can influence political elections. We find that incumbent political parties experience an increase in their vote shares following municipal bond upgrades. The evidence is consistent with rating agencies affecting elections indirectly by expanding local governments’ debt capacity and directly through an impact on voters’ perceptions of the quality of incumbent politicians. To identify these effects, we examine election outcomes within neighboring counties by exploiting exogenous variation in municipal bond ratings due to Moody’s recalibration of its scale in 2010.

Suggested Citation

  • Igor Cunha & Miguel A Ferreira & Rui C Silva, 2022. "Do Credit Rating Agencies Influence Elections? [The economic effects of public financing: evidence from municipal bond ratings recalibration]," Review of Finance, European Finance Association, vol. 26(4), pages 937-969.
    • Handle: RePEc:oup:revfin:v:26:y:2022:i:4:p:937-969.
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    References listed on IDEAS

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    Cited by:

    1. Nguyen, Phuc Lam Thy & Alsakka, Rasha & Mantovan, Noemi, 2023. "The impact of sovereign credit ratings on voters’ preferences," Journal of Banking & Finance, Elsevier, vol. 154(C).

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    More about this item

    Keywords

    Elections; Credit ratings; Financial constraints; Municipal bonds; Government spending; Economic conditions;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • 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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