What drives differences of opinion in sovereign ratings? The roles of information disclosure and political risk

This paper investigates the causes of split sovereign ratings across S&P, Moody’s and Fitch for 64 countries from 1997 to 2011. We identify that split sovereign ratings are not symmetric, with S&P tending to be the most conservative agency. We find that opaque sovereigns are more likely to receive split ratings. Political risk plays a highly significant role in explaining split ratings and dominates economic and financial indicators. Out-of-sample model performance is enhanced by capturing political risk. Government information disclosure affects split ratings between Moody’s and Fitch in emerging countries. The study implies an incentive for governments to reduce political uncertainty and to enhance transparency.