Do Credit Rating Agencies Influence Elections?. (9th June 2022)

• Record Type: Journal Article
• Authors: Cunha, Igor; Ferreira, Miguel A; Silva, Rui C
• Is Part Of: Review of finance. Volume 26:Number 4(2022)
• Page Start: 937
• Page End: 969
• Publication Date: 2022-06-09
• Subjects: Elections -- Credit ratings -- Financial constraints -- Municipal bonds -- Government spending -- Economic conditions; D72 -- G24 -- H74; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfac039
• Languages: English
• ISSNs: 1572-3097

Abstract

Abstract: We show that credit rating agencies can influence political elections. We find that incumbent political parties experience an increase in their vote shares following municipal bond upgrades. The evidence is consistent with rating agencies affecting elections indirectly by expanding local governments' debt capacity and directly through an impact on voters' perceptions of the quality of incumbent politicians. To identify these effects, we examine election outcomes within neighboring counties by exploiting exogenous variation in municipal bond ratings due to Moody's recalibration of its scale in 2010.