Sovereign credit rating mismatches

We study the factors behind split ratings in sovereign credit ratings from Standard & Poor's (S&P), Moody's, and Fitch Group, for the period 1980-2015. We employ random effects ordered and simple probit approaches to assess the explanatory power of different macroeconomic, government and financial variables. Our results show that structural balances and the existence of a default in the last ten years were the least significant variables whereas the level of net debt, budget balances, gross domestic product (GDP) per capita and the existence of a default in the last five years were found to be the most relevant variables explaining rating mismatches across agencies. For speculative-grade ratings, we also find that a default in the last two or five years decreases the rating difference between S&P and Fitch. For the positive rating difference between S&P and Moody’s for investment-grade ratings, an increase in external debt leads to a smaller rating gap between the two agencies. For the rating differences between S&P and Fitch, when the assigned rating from the first was higher than the latter, we found that, independently of the dataset (full, investment- or speculative-grade), an increase in the budget balance would decrease the rating difference whereas an increase in net debt would increase that same difference. For the speculative-grade ratings, we also found that the existence of a default in the last two or five years would decrease the rating difference between S&P and Fitch. The last dependent variable represents the negative rating difference between S&P and Moody’s (that is, a lower rating from S&P than from Moody’s). Both of our probit regressions with the investment-grade dataset show a positive relationship between budget balance, gross debt and GDP growth and the rating difference and a negative relationship between a default in the last year or two and the same rating difference.