Graduation Year

2023

Date of Submission

4-2023

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Government

Reader 1

Andrew Sinclair

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Abstract

This paper examines the relationship between various political, economic, and financial risk factors and sovereign credit ratings. The goal of this research is to determine which political, economic, and financial risk factors have the greatest influence on sovereign credit ratings. This approach of using risk assessment judgement rather than economic data is unique among existing studies. This unique risk assessment-based approach is paired with a larger sample than that in any existing studies. Data on Sovereign Debt Credit Ratings includes ratings from the three largest credit rating agencies for the time 1984 to 2021. I utilized panel data to create both fixed and random effects regressions to assess the explanatory power of different political, economic, and financial risk factors. Data on these Political, Economic and Financial Risk Factors was drawn from Political Risk Services International Country Risk Guide. Data on Sovereign Credit Ratings comes from Moody’s, Fitch, and the S&P. The results indicate that most of the variation in Sovereign Debt Credit Ratings can be attributed to economic and financial risk data. However, treating developing and developed countries separately in regressions shows how political and economic risk factors impact developed and developing countries differently.

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