Sovereign Default Risk and Private Sector Access to Capital in Emerging Markets

39 Pages Posted: 18 Jan 2010

See all articles by Christoph Trebesch

Christoph Trebesch

Kiel Institute for the World Economy; Centre for Economic Policy Research (CEPR)

Udaibir Das

International Monetary Fund (IMF)

Michael G. Papaioannou

International Monetary Fund (IMF)

Date Written: January 2010

Abstract

"Top down" spillovers of sovereign default risk can have serious consequences for the private sector in emerging markets. This paper analyzes the effects of these spillovers using firm-level data from 31 emerging market economies. We assess how sovereign risk affects corporate access to international capital markets, in the form of external credit (loans and bond issuances) and equity issuances. The study first analyzes the impact of sovereign debt crises during the 1980s and 1990s. It goes on to examine the 1993 to 2007 period, using additional measures of sovereign risk-sovereign bond spreads and sovereign ratings-as explanatory variables. Overall, we find that sovereign default risk is a crucial determinant of private sector access to capital, be it external debt or equity. We also find that crisis resolution patterns matter and that defaults towards private creditors have stronger adverse consequences than defaults to official creditors.

Keywords: Access to capital markets, Capital flows, Corporate sector, Credit risk, Cross country analysis, Emerging markets, External financing, International capital markets, Private sector, Risk management, Sovereign debt

Suggested Citation

Trebesch, Christoph and Das, Udaibir and Papaioannou, Michael G., Sovereign Default Risk and Private Sector Access to Capital in Emerging Markets (January 2010). IMF Working Papers, Vol. , pp. 1-38, 2010. Available at SSRN: https://ssrn.com/abstract=1537506

Christoph Trebesch (Contact Author)

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, D-24100
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Udaibir Das

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Michael G. Papaioannou

International Monetary Fund (IMF) ( email )

700 19th Street NW
10-115
Washington, DC 20431
United States
001-202-623-7799 (Phone)
001-202-623-7018 (Fax)

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