A Comparative Analysis of the Investment- and Speculative-Sovereign Credit Ratings

Abstract

This paper examines the variability of emphasis on sovereign credit ratings (SCRs) issued by three leading credit rating agencies: Moody’s, S&P, and Fitch. Using the sample of 55 countries with observations from year 1998 to 2017, this study reveals a clear variation of emphasis on these determinants in assessing the investment-grade versus speculative-grade rated countries. For the speculative-grade rated countries, only determinants representing the Institutional and Susceptibility to External Event factors matter during the post-global financial crisis (GFC) period. Despite the observed variabilities, there is no evidence to support the argument that the CRAs changed their criteria in SCR determination after the global financial crisis. The seven-determinant model continues to have high predictive power for SCRs of all three leading issuers in a rage of 68 to 71% for investment-grade ratings and 81 to 87% for speculative-grade ratings.