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Democratization???s Risk Premium: Partisan and Opportunistic Political Business Cycle Effects on Sovereign Ratings in Developing Countries

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  • Steven Block
  • Burkhard N. Schrage
  • Paul M. Vaaler

Abstract

We use partisan and opportunistic political business cycle (???PBC???) considerations to develop a framework for explaining election-period decisions by credit rating agencies (???agencies???) publishing developing country sovereign risk-ratings (???ratings???). We test six hypotheses derived from the framework with 482 agency ratings for 19 countries holding 39 presidential elections from 1987-2000. We find that ratings are linked to the partisan orientation of incumbents facing election and to expectations of incumbent victory. Consistent with the framework, rating effects are sometimes greater for right-wing compared to left-wing incumbents, perhaps, because partisan PBC considerations with right-wing (left-wing) incumbents reinforce (counteract) opportunistic PBC considerations.

Suggested Citation

  • Steven Block & Burkhard N. Schrage & Paul M. Vaaler, 2003. "Democratization???s Risk Premium: Partisan and Opportunistic Political Business Cycle Effects on Sovereign Ratings in Developing Countries," William Davidson Institute Working Papers Series 546, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2003-546
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    Cited by:

    1. Block, Steven A., 2003. "Political conditions and currency crises in emerging markets," Emerging Markets Review, Elsevier, vol. 4(3), pages 287-309, September.
    2. Steven A. Block & Burkhard N. Schrage & Paul M. Vaaler, 2003. "DEMOCRACY’S SPREAD: Elections and Sovereign Debt in Developing Countries," William Davidson Institute Working Papers Series 2003-575, William Davidson Institute at the University of Michigan.

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    More about this item

    Keywords

    economics; elections; developing countries; ratings;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F30 - International Economics - - International Finance - - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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