Evaluating the Impact of Post-crisis Growth in Emerging Market Corporate Debt

51 Pages Posted: 25 Jan 2018 Last revised: 23 Apr 2019

See all articles by Olga Dodd

Olga Dodd

Auckland University of Technology

Wing H. Chan

Wilfrid Laurier University - School of Business & Economics; City University of Hong Kong (CityUHK) - Department of Economics & Finance

Madhu Kalimipalli

Lazaridis School of Business and Economics, Wilfrid Laurier University

Date Written: April 17, 2019

Abstract

In this paper, we investigate how increased corporate leverage among emerging market firms in the post-crisis period (2010-2015) had an impact on underlying credit risk. Using firm-level credit risk, financial, and balance sheet data from 350 firms in 23 emerging markets over an extended period (2002-2015), we show that (a) an increase in post-crisis period leverage significantly increases corporate credit default swap (CDS) spreads, and (b) the incremental effect of leverage growth on CDS spreads is not significantly different between the crisis (2007-09) and post-crisis periods. Both findings are robust to a battery of tests and imply potential firm-level corporate vulnerability due to increased corporate debt in emerging markets. There is considerable heterogeneity in the impact on CDS spreads at regional, industry, and firm levels. The effect of post-crisis leverage growth on credit risk is significantly lower for high growth prospect firms, and for those domiciled in countries with high net capital inflows and superior governance. Finally, while the increase in post-crisis corporate leverage is found to impact aggregate corporate vulnerability, there is no evidence that it increases sovereign credit risk in the emerging markets.

Keywords: emerging markets, corporate debt, distress risk, post-financial crisis

JEL Classification: G10, G14 G15, G30

Suggested Citation

Dodd, Olga and Chan, Wing H. and Kalimipalli, Madhu, Evaluating the Impact of Post-crisis Growth in Emerging Market Corporate Debt (April 17, 2019). Available at SSRN: https://ssrn.com/abstract=3109160 or http://dx.doi.org/10.2139/ssrn.3109160

Olga Dodd (Contact Author)

Auckland University of Technology ( email )

Auckland, 1142
New Zealand
+6499219999 ext 5423 (Phone)

Wing H. Chan

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
Canada
519-884-0710, ext. 2773 (Phone)
519-888-1015 (Fax)

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Madhu Kalimipalli

Lazaridis School of Business and Economics, Wilfrid Laurier University ( email )

Waterloo, Ontario N2L 3C5
Canada
519-884-0710 (Phone)

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

Register to save articles to
your library

Register

Paper statistics

Downloads
58
Abstract Views
483
rank
360,737
PlumX Metrics