Sovereign ceilings “lite”? The impact of sovereign ratings on corporate ratings |
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Authors: | Eduardo Borensztein Kevin Cowan Patricio Valenzuela |
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Institution: | 1. Inter-American Development Bank, 1300 New York Ave NW, Washington, DC 20005, USA;2. Central Bank of Chile, Agustinas 1180, Santiago, Chile;3. Department of Industrial Engineering, University of Chile, República 701, Santiago, Chile |
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Abstract: | Although credit rating agencies have gradually moved away from a policy of never rating a corporation above the sovereign (the ‘sovereign ceiling’), it appears that sovereign credit ratings remain a significant determinant of corporate credit ratings. We examine this link using data for advanced and emerging economies over the period of 1995–2009. Our main result is that a sovereign ceiling continues to affect the rating of corporations. The results also suggest that the influence of a sovereign ceiling on corporate ratings remains particularly significant in countries where capital account restrictions are still in place and with high political risk. |
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Keywords: | G1 G2 G3 |
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