Are credit rating agencies users of government accounting information? Evidence from the sovereign rating process

IMPACT: Sovereign governments are regularly evaluated by credit rating agencies (CRAs) that perform an analysis of creditworthiness based on mostly public data. This article shows that the data used by CRAs is mainly drawn from economic and statistical accounts rather than government financial statements. Thus, CRAs cannot be considered users of financial accounting information, at least at the sovereign government level. The evidence also suggests that governmental accounting information is neglected because it lacks the fundamental quality of comparability that CRAs require, given that ratings are ordinal measure of creditworthiness. Unless governments begin producing harmonized financial statements, it is unlikely that CRAs will ever become users of accounting information. Meanwhile, CRAs ground their sovereign rating process on harmonized economic and statistical accounts that are lacking important information on government payables, receivables, contingent liabilities and assets.