Sovereign Ceilings “Lite”? The Impact of Sovereign Ratings on Corporate Ratings in Emerging Market Economies

By Eduardo Borensztein, Patricio A Valenzuela, Kevin Cowan

April 1, 2007

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Eduardo Borensztein, Patricio A Valenzuela, and Kevin Cowan. Sovereign Ceilings “Lite”? The Impact of Sovereign Ratings on Corporate Ratings in Emerging Market Economies, (USA: International Monetary Fund, 2007) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/075
Stock No:

WPIEA2007075
ISBN:

9781451866391
ISSN:

1018-5941

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