Is There a Bias in Sovereign Ratings Due to Financial Reasons?

There exist different kinds of biases in sovereign ratings. In this paper we analyze one of the possible rating biases, i.e. we examine if rating agencies may have the incentive to rate countries where they earn more money better compared to countries where they earn less (profit maximizing bias). This paper finds no empirical evidence of profit maximizing bias on the level of sovereign ratings: In the rating process for countries the reputational concerns seem to dominate over financial interests. To our knowledge, this paper is the first analysis examining the issue of profit maximizing bias on the sovereign level.