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

34 Pages Posted: 12 Apr 2007

See all articles by Eduardo Borensztein

Eduardo Borensztein

Inter-American Development Bank (IADB)

Kevin Cowan

Central Bank of Chile

Patricio Valenzuela

Universidad de los Andes, Chile

Date Written: April 2007

Abstract

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.

JEL Classification: G1, G2, G3

Suggested Citation

Borensztein, Eduardo and Cowan, Kevin and Valenzuela, Patricio, Sovereign Ceilings 'Lite'? The Impact of Sovereign Ratings on Corporate Ratings in Emerging Market Economies (April 2007). IMF Working Paper No. 07/75, Available at SSRN: https://ssrn.com/abstract=979029

Eduardo Borensztein (Contact Author)

Inter-American Development Bank (IADB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Kevin Cowan

Central Bank of Chile ( email )

Agustinas 1180
Santiago
Chile

Patricio Valenzuela

Universidad de los Andes, Chile ( email )

Mons. Álvaro del Portillo
Las Condes
Santiago, 12.455
Chile

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