Explaining Trend and Variation in the Regulatory Use of Credit Ratings

Abstract

Having outlined an explanatory framework for the regulatory use of credit ratings, the next step is to check whether the proposed theoretical model holds any water when it is confronted with empirical evidence. This chapter examines how far the theoretical model introduced in Chapter 3 is able to account for both the common trend and cross-country variations in the use of credit ratings for regulatory purposes. An intertemporal and interregional congruence analysis is performed as an initial test of the empirical tenability of the theoretical model. The analysis checks whether the condition variable (macro-institutional context), the independent variable (public regulators’ dependence on credit rating agencies’ analytical resources) and the dependent variable (public regulators’ use of credit ratings in regulation) of the proposed theoretical model covary over time and across world regions in line with the predictions of the theoretical framework.