During the financial crisis, sovereign ratings have come under increased public scrutiny due to their strong impact on sovereign borrowing costs and hence financial stability of countries. However, their influence on corporations within and outside the respective nations has so far attracted only limited attention, although several academics have provided intriguing insights in this regard. In order to obtain a structured overview of this relatively young strand of research, this paper reviews key insights and conclusions that the extant literature offers on the role of sovereign creditworthiness for corporations. Herein, it focuses on the effects that have been observed for the corporate business environment, access to capital, and foreign investment activities. Different research issues providing fertile ground for future studies are identified.

Sovereign ratings have not only been regarded as an indicator of country risk for foreign investors, but also as a determining factor for capital market conditions of domestic firms. Although they have attracted growing interest in academic research, the extant literature has so far rendered only minor attention to their role in corporate strategic investment decisions. This paper focuses on the influence of sovereign ratings on domestic and cross‐border M&A decisions in a sample of Latin American and South East Asian countries. The empirical results lend support to the proposition that sovereign ratings condition the level of activity in domestic M&A markets as well as the attractiveness of domestic M&A targets for foreign acquirers. Moreover, the foreign bidders’ choice of ownership stakes in acquisitions appears to be affected. The paper thus highlights the relevance of sovereign ratings as a country‐level factor to be considered in studies of corporate investment behavior.