Exodus from Sovereign Risk: Global Asset and Information Networks in the Pricing of Corporate Credit Risk

60 Pages Posted: 25 Jul 2015

See all articles by Jongsub Lee

Jongsub Lee

University of Florida - Warrington College of Business Administration

Andy Naranjo

University of Florida - Warrington College of Business Administration

Stace Sirmans

Auburn University

Multiple version iconThere are 2 versions of this paper

Date Written: July 24, 2015

Abstract

Using 5-year credit default swap (CDS) spreads on 2,364 companies in 54 countries during 2004-2011, we show firms exposed to better property rights institutions through their foreign asset positions (Institutional channel) and firms whose stocks are cross-listed on exchanges with stricter disclosure requirements (Informational channel) reduce their CDS spreads by 40 bps for a one standard deviation increase in their exposure on the two channels. These channels capture distinct effects beyond those associated with firm- and country-level fundamentals. Overall, we find that firm-level global asset and information connections are important mechanisms to delink firms from their sovereign and country risks.

The appendices for this paper are available at the following URL: http://ssrn.com/abstract=2635548

Keywords: International CDS markets, corporate credit risk, sovereign risk, country risk, multinational corporations, asset geographic location, cross-listing, property rights, creditor rights, disclosure requirements, sovereign ceiling violations

JEL Classification: F23, F34, F36, G01, G15, K40

Suggested Citation

Lee, Jongsub and Naranjo, Andy and Sirmans, Stace, Exodus from Sovereign Risk: Global Asset and Information Networks in the Pricing of Corporate Credit Risk (July 24, 2015). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2635545

Jongsub Lee (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

Department of Finance Insurance & Real Estate
P.O. Box 117168
Gainesville, FL 32611-7168
United States
352-273-4966 (Phone)
352-392-0301 (Fax)

Andy Naranjo

University of Florida - Warrington College of Business Administration ( email )

P.O. Box 117168
Gainesville, FL 32611-7168
United States
352-392-3781 (Phone)

Stace Sirmans

Auburn University ( email )

Auburn, AL 36849
United States

HOME PAGE: http://www.stacesirmans.com

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
257
Abstract Views
1,416
rank
88,637
PlumX Metrics