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This article shows that financial openness significantly affects corporate and sovereign credit ratings and that the magnitude of this effect depends on the level of development of the domestic financial market. Issuers located in less financially developed economiesi stand to benefit the most from opening up their capital accounts, whereas the impact of this effect decreases as the level of development of the domestic capital market improves.Fondecyt Initiation Project 11130390 Institute for Research in Market Imperfections and Public Policy (Ministerio de Economia, Fomento y Turismo) ICM IS13000

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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.