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Contents

Abstract............................................................................................................................. 3

Non-technical summary.................................................................................................... 4

1. Introduction .................................................................................................................. 6

2. Rating systems and literature........................................................................................ 7

2.1. Overview of rating systems.................................................................................... 7

2.2. Literature review.................................................................................................... 8

3. Methodology............................................................................................................... 10

3.1. Explanatory variables........................................................................................... 10

3.2. Linear regression framework ............................................................................... 12

3.3. Ordered response framework............................................................................... 14

4. Empirical analysis ...................................................................................................... 15

4.1. Data...................................................................................................................... 15

4.2. Linear panel results .............................................................................................. 16

4.2.1. Full sample..................................................................................................... 16

4.2.2. Differentiation across sub-periods................................................................. 19

4.2.3. Differentiation across ratings levels .............................................................. 20

4.3. Ordered probit results........................................................................................... 21

4.4. Prediction analysis ............................................................................................... 23

4.5. Examples of specific country analysis................................................................. 26

5. Conclusion.................................................................................................................. 28

References ...................................................................................................................... 31

Tables and figures........................................................................................................... 33

Appendix 1 - Data sources.............................................................................................58

Appendix 2 - Countries and years in most extensive rating sample..............................59

Appendix 3 - A logistic transformation ......................................................................... 60