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

53 Pages Posted: 25 Jan 2018 Last revised: 4 Nov 2019

See all articles by Olga Dodd

Olga Dodd

Auckland University of Technology

Madhu Kalimipalli

Lazaridis School of Business and Economics, Wilfrid Laurier University

Wing H. Chan

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

Date Written: October 25, 2019

Abstract

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

Suggested Citation

Dodd, Olga and Kalimipalli, Madhu and Chan, Wing H., Evaluating the Impact of Post-crisis Growth in Emerging Market Corporate Debt (October 25, 2019). Available at SSRN: https://ssrn.com/abstract=3109160 or http://dx.doi.org/10.2139/ssrn.3109160

Olga Dodd

Auckland University of Technology ( email )

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

Madhu Kalimipalli (Contact Author)

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/

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

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