Sovereign Ceilings “Lite”? The Impact of Sovereign Ratings on Corporate Ratings in Emerging Market Economies
April 1, 2007
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Summary
Although credit rating agencies have gradually moved away from a policy of never rating a private borrower above the sovereign (the "sovereign ceiling") it appears that sovereign ratings remain a significant determinant of the credit rating assigned to corporations. We examine this link using data for advanced and emerging economies over the past decade and conclude that the sovereign ratings have a significant and robust effect on private ratings even after controlling for country specific macroeconomic conditions and firm-level performance indicators. This suggests that public debt management affects the private sector through a channel that had not been previously recognized.
Subject: Business enterprises, Credit rating agencies, Credit ratings, Emerging and frontier financial markets, Public debt
Keywords: private sector, rating agency, retained earnings, sovereign rating, working capital, WP
Pages:
32
Volume:
2007
DOI:
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Issue:
075
Series:
Working Paper No. 2007/075
Stock No:
WPIEA2007075
ISBN:
9781451866391
ISSN:
1018-5941
