4 The number of rated firms per country, computed<sup>as the average number of firms</sup> who held a foreign or domestic currency<sup>rating from S&P and Moody's in the second</sup> half of 1999, shows that the scope of coverage<sup>for banks is substantially similar to that of</sup> the total of rated firms. In both cases Africa,<sup>Central America, Central Asia and the</sup> Middle East show the lowest density of coverage.<sup>Most developing countries show the</sup> lowest degree of concentration of rated<sup>firms, exception made for fast growing</sup> economies as Korea and Indonesia and<sup>for large countries as China, Brazil, Argentina</sup> and Chile.

In what follows, we conventionally convert the<sup>equivalent Moody's and S&P</sup> alphanumeric rating scale into the numeric<sup>scale as reported in Table 1.</sup> The progressive extension of the rating<sup>coverage also seems to be closely</sup> associated with the level of economic development<sup>and the rate of economic growth. Are</sup> the number of rated firms and the level of their ratings<sup>positively associated with their</sup> country's income level? In order to shed some<sup>light on this issue, we have grouped the</sup> countries with at least one rated firm in four categories<sup>according to their income level:</sup> GIO countries, High income non-GIO countries, Upper-middle<sup>income countries and</sup> Low-middle income countries. Table 2 shows the<sup>number of rated institutions-banks</sup> and non-banking firms alike-and the median<sup>rating for each of the four categories as</sup> reported by S&P. It appears that the total number<sup>of rated firms declines sharply in</sup> countries of low income. The reduction of rated<sup>firms is particularly steep when it comes</sup> to non-banks. The number of rated firms in G10<sup>countries is 24 times higher than that of</sup> firms located in the lowest income group, as opposed<sup>to a GDP level eight times larger.</sup> The number of rated banks is instead only five times<sup>larger. The median rating of the four</sup> categories shows that the first two groups of high-income<sup>countries (GIO and non-G10)</sup> are solidly positioned above the level of investment<sup>grade (55 in the numeric scale),</sup> while both the middle and lower income groups are<sup>below the level of investment grade.</sup> An analogous situation can be found for non-banks as<sup>well. Though the values of median</sup> ratings do not exhibit a decreasing, monotonic pattern,<sup>they are generally lower for firms</sup> in NHICs than for firms in high-income countries.<sup>This finding will be explored in more</sup> detail in the next sections of the paper.

Are firms' ratings closely associated with sovereign ratings?<sup>What is the role of</sup> income levels in this relationship? Figure 1, which<sup>plots the distribution of sovereign and</sup> firms' ratings for the four income groups of countries<sup>previously defined, sheds some</sup> light on these two questions. The correlation<sup>between firms' and sovereign ratings is</sup> almost non-existent for G10 countries. However, it<sup>becomes increasingly tighter for the</sup> other three groups of countries as the income<sup>level decreases. Furthermore, GI0</sup> countries display a very clear bimodal distribution<sup>of firms' ratings, as a result of two</sup> different distributions for firms in the banking sector<sup>and outside the banking sector: the</sup> former group of firms displays a maximum below<sup>the investment grade level while the</sup> latter group is much more concentrated towards<sup>higher ratings. In contrast, the behavior</sup> of the three remaining groups of countries demonstrates<sup>that there is a closer correlation</sup> between firms' and sovereign ratings, that ratings for<sup>both banks and non-banks exhibit a</sup> similar pattern and that average ratings decrease<sup>with the level of income.</sup> Overall, this brief overview of the worldwide distribution<sup>of sovereign and firm</sup> ratings shows that US based rating agencies,<sup>in spite of the very rapid growth of their</sup> _Ferri, Liu, and Majnoni, "The Role of Rating Agency_<sup>_Assessments in Less Developed Countries: Impact ofthe Proposed Basel Guidelines"_</sup>