Research thesis submitted in partial fulfilment of the requirements for the degree
Masters of Management in Finance and Investment
Faculty of Commerce, Law and Management
Wits Business School
University of Witwatersrand
June 2017 / Sovereign credit ratings provide a summary of the economic conditions of a particular
country, and are a representation of the ability and willingness of a country to make its
debt payments as they fall due. These ratings provide an indication of the cost of
borrowing in that country, so a country would like to obtain the highest possible credit
rating. These ratings are provided by independent agencies who use their own systems to
provide a rating and an outlook. Credit ratings are important as they provide information to
investors on the potential investability and access to financial markets of that particular
country. The problem found by some literature is the reliability of ratings in emerging
markets as investors perceive these markets to be riskier in nature.
In this paper, the aim was to identify what the different factors that the two big agencies,
Moody’s and Standard and Poor’s use when rating a country. This is done through using a
multiple regression model on 5 emerging economies from different continents from 1994 to
2015, based on annual data. The first step was to find out what are the macro-economic
variables that have strong correlations with the agencies, and the results show that
external balances as a % of GDP and the GDP growth have low correlations with the
ratings. The regression analysis also shows that Moody’s takes the inflation rate into
consideration when rating a country but Standard and Poor’s does not.
The paper also wanted to identify the effects of ratings on markets, and this was done
through the effect of ratings on the interest rate spreads. The results show that the rating
differential, which was the ratings from Moody’s subtracted from the ratings of Standard
and Poor’s, affect the interest rate spreads negatively, therefore a better rating should
reduce the spread and have a positive effect on the financial markets. / MT2017
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:wits/oai:wiredspace.wits.ac.za:10539/23062 |
| Date | January 2017 |
| Creators | Manungo, Tavuya |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | Online resource (82 leaves), application/pdf |
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