Sovereign Debt Rating Factor Analysis

As the development of economic integration continues, the cooperation among different countries has become more and more popular. National governments are by far the largest issuers on capital markets and the rating of creditworthiness of sovereign borrowers are seen as an indication of public and private sector issues. So it is natural to place increased value on the analysis to the possible determinants of sovereign credit ratings. This research examines determinants of sovereign credit ratings assigned by the two leading credit rating agencies, Moody's and Standard and Poor's, is conducted in this paper by using linear and logistic transformations of the rating scales. Of the large number of variables that can be used, the set of explanatory variables selected in this study is significant in explaining the credit ratings. Namely, five variables appear to be the most relevant to determining a country's credit rating: GDP per capita, inflation rate, real GDP growth rat, level of economic development, default history. After identifying the effects of explanatory variables on sovereign credit rating by regression analysis of data in 2004, this article predicts results of the sovereign credit ratings and tests the results by comparing the real ratings publicized by Standard and Poor's . Finally, it points out the discrepancy between the determinants in developed and developing countries which influence the sovereign credit ratings by regression analysis.