Why rating agencies disagree on sovereign ratings

This paper explores why rating agencies disagree on a country’s sovereign default risk. Specifically, we analyse the sovereign ratings of four agencies and their interactions on an empirical basis. Our findings indicate that the frequency of split ratings and their lopsidedness are the result of uncertainty and the use of different rating methodologies but not of a home bias. Still, rating agencies treat world regions differently. Finally, a small and subscriber-paid agency appears to be more independent but also more volatile in its rating behaviour than the issuer-paid Big Three (Standard and Poor’s, Moody’s and Fitch).