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

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  • Ben Hmiden, Oussama
  • Tatoutchoup, Didier
  • Nguimkeu, Pierre
  • Avelé, Donatien
Abstract
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.

Suggested Citation

  • Ben Hmiden, Oussama & Tatoutchoup, Didier & Nguimkeu, Pierre & Avelé, Donatien, 2024. "Discrepancy and cross-regional bias in sovereign credit ratings: Analyzing the role of public debt," Economic Modelling, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:ecmode:v:131:y:2024:i:c:s0264999323004121
    DOI: 10.1016/j.econmod.2023.106600
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    More about this item

    Keywords

    Sovereign credit ratings; Credit rating agencies; Discrimination; Panel smooth transition regression models;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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