Sovereign ceilings “lite”? The impact of sovereign ratings on corporate ratings

Borensztein, Eduardo; Cowan, Kevin; Valenzuela, Patricio

doi:10.1016/j.jbankfin.2013.07.006

Cited by 175 publications

(143 citation statements)

References 21 publications

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“…As an additional test to extend our examination to more 8 Sovereign yields also proxy the cost of cross-country corporate debt, given the strong evidence that corporate spreads are generally positively correlated with sovereign spreads (Durbin and Ng, 2005). Further, as noted earlier, Borensztein et al (2013) suggest that sovereign rating represents a strong upper bound rating assigned to corporates. They empirically show that sovereign risk is a significant factor in the pricing of corporate debt.…”

Section: Sovereign Bond Spreads -Cost Of Debtsupporting

confidence: 57%

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Cost of sovereign debt and foreign bias in bond allocations

Bhatta

Marshall

Thapa

2017

Journal of International Financial Markets, Institutions and Mo

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Finance theory suggests that markets where foreign bond portfolio investors overweight their portfolio relative to the prescribed theoretical benchmark should experience higher international risk sharing. Correspondingly, the cost of debt in such markets should be lower compared to markets facing a lower degree of international risk sharing. We empirically examine this prediction using a panel data set of sovereign bond yield spreads and a measure of suboptimal foreign bond portfolio allocations for 50 emerging and ten developed markets.Consistent with theory, our results show higher levels of foreign bond allocations -relative to the theoretical benchmark -are negatively related to the cost of debt. These results have important policy implications as a country's cost of debt could potentially be lowered by encouraging foreign portfolio investors to hold their optimal allocation. JEL Classification: E43, G12, G15

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Section: Sovereign Bond Spreads -Cost Of Debtsupporting

confidence: 57%

“…4 Borensztein et al (2013) show that sovereign ratings represent a strong upper bound assigned to corporate bonds. They conclude that sovereign risk is a significant factor in the pricing of corporate debt.…”

Section: Introductionmentioning

confidence: 99%

Cost of sovereign debt and foreign bias in bond allocations

Bhatta

Marshall

Thapa

2017

Journal of International Financial Markets, Institutions and Mo

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“…Sovereign ratings represent a measure of the credit risk of a given country, and a ceiling for the ratings assigned to non-sovereign issuers within the country, although the ceiling is no longer applied in an absolute sense by the largest CRAs (Borensztein et al, 2013). CRAs' credit opinions have a widespread impact on various segments of the financial system.…”

Section: Literature Reviewmentioning

confidence: 99%

The credit signals that matter most for sovereign bond spreads with split rating

Alsakka

Gwilym

2015

Journal of International Money and Finance

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We investigate how split ratings influence the information content of credit rating events on the sovereign bond markets during 2000-2012. We find that market reactions are far stronger for negative events on the inferior ratings and for positive events on the superior ratings. Such evidence suggests aversion of market participants to the ambiguity inherent in split ratings.Sovereign credit spreads are particularly responsive to negative events by S&P (the more conservative agency in the sample). Moody's positive events have a significant impact only when Moody's assigns superior pre-event ratings compared with S&P. There is little evidence that split ratings involving Fitch have any market implication. JEL classification: G15; G24Keywords: Sovereign credit event; Ambiguity aversion; Split ratings; Bond spreads. * Corresponding author. Tel.: +44 (0) 1248 383571. E-mail address: r.alsakka@bangor.ac.uk. AcknowledgementsWe are indebted to an anonymous referee for their suggestions. We are very grateful for comments from Robert Faff, Ian Tonks, and seminar participants at the University of Bath, UK.1

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“…They argue that there is 20% decline of foreign credit to emerging market private companies during debt renegotiation. Along with domestic private credit reduction sovereign defaults also increase the risk of a banking crisis (Borensztein et al 2007, Sandleris 2008. Dick-Nielsen et al (2012) and their findings show that sovereign debt crisis increase corporate bond spreads.…”

Section: Government Debt and Corporate Performancementioning

confidence: 97%

Sovereign Debt and Corporate Capital Structure: The Evidence From Selected European Countries During the Gglobal Financial and Economic Crisis

Mokhova¹,

Zinecker

2017

Business: Theory and Practice

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The recent Global financial crisis and the following European debt crisis show the significance of country financial stability and its impact on the private sector. Moreover, the sovereign debt as an essential element of government macroeconomic policy influences the financial performances of the companies and their future development and growth. The capital structure and financing decisions represent one of the most significant parts of company’s financial policy and its key to financial strength. There are a lot of external factors influencing the capital structure; however, due to the European debt crisis the aim of this study is to indicate the influence of sovereign debt on capital structure of the private held companies in different European countries. This study examines the evidence from European developed countries and emerging markets for the period 2005–2012, in order to compare the level of its impact on the capital structure according to the countries’ specifics. We find that after Global Financial Crisis the sovereign debt has tendency to increase in all investigated countries. Greece and Italy have the highest level of debt and it exceeds their Gross Domestic Product (GDP). In addition to that, the Czech Republic has the lowest level of sovereign debt to GDP, but at the same time the corporate capital structure exceeds 100%. The sovereign debt levels are strongly and statistically significantly correlated with each other, however, Hungarian debt has weaker relation with other countries. The findings also show the integration and interdependence of European countries. Moreover, Hungarian, Czech and German private sectors are the most depended on the level of sovereign debt.

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Sovereign ceilings “lite”? The impact of sovereign ratings on corporate ratings

Cited by 175 publications

References 21 publications

Cost of sovereign debt and foreign bias in bond allocations

Cost of sovereign debt and foreign bias in bond allocations

The credit signals that matter most for sovereign bond spreads with split rating

Sovereign Debt and Corporate Capital Structure: The Evidence From Selected European Countries During the Gglobal Financial and Economic Crisis

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