A Comparative Study Of Sovereign Credit Rating Determents Between Developed And Developing Countries

Sovereign credit rating is a process of evaluating a country’s politics, economy, external debt and external liquidity by rating agencies in accordance with certain procedures, methods and standards, and give a certain rating finally. Sovereign credit rating play an important role in deciding the cost of the government and enterprises’finance overseas and revealing the sovereign risk of foreign investment. Under the conditions of asymmetric information, and with the increasing of the enterprises’finance overseas and foreign investment. The demand for sovereign rating becoming more and more, since the outbreak of the debt crisis of Europe, sovereign credit rating has been becoming the focus of attention.Basing on the understanding of the sovereign credit rating and the related theories, we carried out a theoretical analysis of the sovereign ratings’determents from economic development, fiscal deficit and the external debt and liquidity, and then we concluded a comparative analysis for the rating determents between the developed and the developing countries. After this, we made an empirical analysis with the major rating agencies’average sovereign rating and sixty countries’macroeconomic data from2000to2009, the results showed that four variables had no significant effect on sovereign credit ratings, respectively, GDP growth, the deficit, current account balance, foreign exchange reserves/external debt. Then we turn the samples into developed countries and developing countries, and make regressions respectively, empirical results show that there is a big difference between the developed and developing countries’determents. The determents that affect the sovereign credit ratings of the developing countries have GDP per capita, foreign exchange reserve/external debt, savings/investment, banks’bad assets ratio and total debt, only the economic growth rate is not significant. For the developed countries, only four determents are significant. They are GDP per capita, inflation, savings/investment and government debt, other determents are not significant. Therefore, the determents taken into account by the rating agencies are different between developing countries and developed countries. For the developed countries, rating agencies pay more attention to their external financing capacity and the convertibility, but for the developing countries, the rating agencies pay more attention to their abilities to create foreign exchange earnings.