First-mover disadvantage: the sovereign ratings mousetrap

Patrycja Klusak* (Corresponding Author), Moritz Kraemer, Huong Vu

*Corresponding author for this work

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Using 102 sovereigns rated by the three largest credit rating agencies (CRA), S&P, Moody’s and Fitch between January 2000 and January 2019, we document that the first-mover CRA (S&P) in downgrades falls into a commercial trap. Namely, each sovereign downgrade by one notch by the first-mover CRA (S&P) results in 2.4% increase in the probability of a rating contract being cancelled by the sovereign client. The more downgrades S&P makes in a given month, the more their sovereign rating coverage falls relative to its rivals. Our results are more pronounced for downgrades on small sovereign borrowers than on large sovereign borrowers. This paper explores the interaction between three themes of the literature: herding behaviour amongst CRAs, issues of conflict of interest and ratings quality. Our empirical evidence gives credence to, and underscores the need for sovereign ratings to be made in an impartial way and independent of their commercial ramifications elsewhere in the CRA.
Original languageEnglish
Pages (from-to)3-44
Number of pages42
JournalFinancial Markets, Institutions & Instruments
Issue number1
Early online date18 Jan 2022
Publication statusPublished - 23 Jan 2022

Data Availability Statement

Please refer to Appendix Table 3 for a full list of episodes


  • Sovereign credit ratings
  • herding behaviour
  • conflict of interest
  • solicitation


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