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Sovereign debt and corporate borrowing costs in emerging markets

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  • Ağca, Şenay
  • Celasun, Oya
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    Abstract

    We document that the corporate sector faces higher borrowing costs when the external debt of the public sector is higher. By contrast, no significant relationship is found between domestic public debt and corporate borrowing costs. An increase in sovereign debt by one standard deviation from its sample mean is associated with 9% higher loan yield spreads. The correlation is considerably higher in countries with weak creditor rights and past sovereign default episodes. Overall, these findings suggest substantial adverse linkages between public external debt and private financing costs.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0022199612000244
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of International Economics.

    Volume (Year): 88 (2012)
    Issue (Month): 1 ()
    Pages: 198-208

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    Handle: RePEc:eee:inecon:v:88:y:2012:i:1:p:198-208

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    Web page: http://www.elsevier.com/locate/inca/505552

    Related research

    Keywords: Sovereign debt; Corporate debt; Syndicated loans; Yield spreads; Creditor rights;

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    References

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    Cited by:
    1. Theologos Dergiades & Costas Milas & Theodore Panagiotidis, 2013. "Tweets, Google trends and sovereign spreads in the GIIPS," LSE Research Online Documents on Economics 54405, London School of Economics and Political Science, LSE Library.
    2. Klein, Christian & Stellner, Christoph, 2014. "Does sovereign risk matter? New evidence from eurozone corporate bond ratings and zero-volatility spreads," Review of Financial Economics, Elsevier, vol. 23(2), pages 64-74.

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