Journal Articles

Sovereign Bond Ratings and the Democratic Advantage: Portfolio Investment in the Developing World

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As developing countries expose portfolio investors to potential high risk, it is expected that investors will follow the advice of credit rating agencies (CRAs) before sending capital abroad. Controlling for political and economic explanations in the literature, the authors use panel data for 50 developing countries from 1987 to 2003 to determine if changes in CRA ratings affect portfolio flows. Using a two-stage Heckman model, they find that countries that are under newer political institutions and facing economic challenges are more likely to be selected by portfolio investors because they offer risk premia, but that CRA ratings and democracy have significant positive signaling effects on the countries that receive the largest private equity inflows. In fact, democracy and bond ratings are the most important for the poorest developing countries. The results suggest the significance of CRA ratings for equity investors and contribute a revision for the democratic advantage debate

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Detail Information

Series Title

Comparative Political Studies

Call Number

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Publisher

California : Sage Publications., 2008

Collation

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Language

English

ISBN/ISSN

00104140

Classification

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Content Type

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Media Type

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Carrier Type

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Edition

Vol. 41, No. 8, Page 1092-1116

Subject(s)

Developing countries
Bond Ratings
Portfolio Investment
Democratic Advantage
Heckman model
Sovereign Bond Ratings

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