The Impact of Sovereign Credit Ratings on Voters’ Preferences

Mantovan, Noemi ORCID: 0000-0002-5930-4880, Alsakka, Rasha and Nguyen, Phuc Lam Thy (2023) The Impact of Sovereign Credit Ratings on Voters’ Preferences. Journal of Banking and Finance, 154. p. 106938.

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Abstract

We investigate the political power of credit rating agencies by building a theoretical model that illustrates how heterogeneous voters change their political preferences after receiving credit signals which infer the quality of their governments. We empirically test this hypothesis using a rich dataset of daily sovereign ratings, outlook and watch signals assigned by S&P, Moody's and Fitch to EU countries from 2000 to 2017, along with a unique dataset measuring public support for governments. We find that negative rating signals lead to a significant decrease in government support, therefore influencing the electoral prospects of political parties. Both sociotropic and egocentric voters’ preferences are affected by sovereign ratings. Our results are confirmed across a battery of robustness tests and various modelling approaches, including fixed effects and difference in differences models and propensity score matching. Our findings offer wide-ranging implications for policy makers, political parties, governments, and the rating industry.

Item Type:	Article
Uncontrolled Keywords:	Sovereign credit ratings, Opinion poll, Voting behavior
Divisions:	Faculty of Humanities and Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	19 Jun 2023 10:45
Last Modified:	16 Aug 2023 10:14
DOI:	10.1016/j.jbankfin.2023.106938
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3171082