How Fiscal Policies Affect Credit Rates: Probit Analysis of Three Main Credit Rating Agencies’ Sovereign Credit Notes

Abstract

The aim of this study is to identify the relationship between fi scal policy and sovereign credit ratings within a comparative framework for the post-2000 period. In this study, indicators affecting credit notes of three rating agencies through domestic savings, growth, infl ation, unemployment, current account balance and public revenues, public expenditures, primary defi cits, budget defi cits and public debt data for selected countries for the period between 2001 and 2016 are evaluated by using probit analysis under four scenarios.The study reveals that growth, unemployment, savings, current account defi cit and public debt have come to the forefront in the realizations and far estimates, while the main indicators in the public sector, namely the impact of expenditure, defi cit, primary balance and debt on rating decisions, are more dominant in the near estimates. These results show that the factors that are differentiating the credit rating evaluation period are the indicators of public fi nance. It seems that models used by the credit institutions are more likely to show short-term outcomes in the sense of public fi nance parameters mainly refl ecting the macroeconomic responsibility level of the ruling governments.

Modelling Financial Variables Using Neural Networking to Access Creditworthiness

“…Further, in subsequent years, researchers across the globe contributed to this domain and suggested the gaps in Earnings after tax (EAT) and the earnings per share (EPS) represent the share of the owners and play an important role in determining the financial health of an organization ). An organization having higher EAT tends to pay its debts properly and the probability of default is remote (Balikcioglu & Yilmaz, 2019;Camanho et al, 2020). Distributing dividends by the organization represents paying the cost of debt and the same is done as a post-interest payment.…”