Title: Are sovereign credit ratings impacted by institutional quality?

Authors: Abhinav Goel; Archana Singh

Addresses: Delhi School of Management, Delhi Technological University, Delhi-110042, India ' Delhi School of Management, Delhi Technological University, Delhi-110042, India

Abstract: Sovereign credit ratings (SCR) depict the risk taken by investors, influencing the availability and cost of international funding. Methodologies of international credit rating agencies reveal that both qualitative and quantitative factors are important in determining SCR. While the role of quantitative factors in determining SCR has been extensively analysed, the study of the role of qualitative factors is limited. While there could be various qualitative factors impacting SCR, the present work focuses on one institutional factor – 'rule of law'. To investigate the linkage, the present work develops a dataset having this qualitative parameter of 60 countries for five years (2016–2020). The data has been gathered from World Bank and Moody's Investors Services and studied using regression analysis which indicates a positive correlation of 82% between 'rule of law', and SCR. Hence, SCR, and therefore cost and availability of international funds, can be improved by strengthening the 'rule of law'.

Keywords: rule of law; world governance indicators; sovereign credit rating; sovereign credit risk; credit rating agencies; CRA.

DOI: 10.1504/IJEA.2024.144246

International Journal of Economics and Accounting, 2024 Vol.12 No.2, pp.99 - 115

Received: 23 Jun 2023
Accepted: 18 Sep 2023
Published online: 03 Feb 2025 *

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