Evaluating the Impact of Post-crisis Growth in Emerging Market Corporate Debt
53 Pages Posted: 25 Jan 2018 Last revised: 4 Nov 2019
Date Written: October 25, 2019
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 during 2002-2015, we find 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. Overall, we find higher firm-level corporate vulnerability due to post-crisis debt accretion particularly among highly leveraged firms. The corporate vulnerability is mitigated for high growth prospect firms, and for those domiciled in countries with high net capital inflows and superior governance. While high leverage impacts aggregate corporate vulnerability, there is no evidence that it increases sovereign credit risk.
Keywords: emerging markets, corporate debt, credit risk, post-financial crisis
JEL Classification: G00, G01, G10, G15
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