Relative Bias in Sovereign Credit Risk Spill-over to Domestic Firms

42 Pages Posted: 2 Sep 2014 Last revised: 8 Sep 2015

See all articles by Paula Hill

Paula Hill

University of Bristol

Emawtee Bissoondoyal-Bheenick

Monash University; Financial Research Network (FIRN)

Robert W. Faff

University of Queensland

Date Written: September 8, 2015

Abstract

In this paper, we investigate the spill-over of sovereign rating changes into the corporate sector across 34 countries, with a primary focus on the relative effects of positive and negative events. Positive or negative bias of such spill-overs could impact the relative speed and depth of recessions versus recoveries. We find that such bias varies across countries. Our results also show considerable variation in total (positive and negative) spill-over; the spill-over rates can partly be explained by firm and sovereign level characteristics, with firms rated at parity with the sovereign particularly affected by both positive and negative spill-over in both investment and sub-investment grade rated sovereigns.

Keywords: Credit risk, sovereign ratings, firm ratings, rating spill-over effects

JEL Classification: G15, G24

Suggested Citation

Hill, Paula and Bissoondoyal-Bheenick, Emawtee and Faff, Robert W., Relative Bias in Sovereign Credit Risk Spill-over to Domestic Firms (September 8, 2015). Available at SSRN: https://ssrn.com/abstract=2489705 or http://dx.doi.org/10.2139/ssrn.2489705

Paula Hill

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Emawtee Bissoondoyal-Bheenick

Monash University ( email )

Building H, Level 3
900 Dandenong Road
Caulfield, Victoria 3 145
Australia
+61399032957 (Phone)
+61399032422 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia 4071 Brisbane
Queensland
Australia

HOME PAGE: www.firn.org.au

Robert W. Faff (Contact Author)

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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