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Sovereign Default Risk and Private Sector Access to Capital in Emerging Markets

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Author Info

  • Udaibir S. Das
  • Michael G. Papaioannou
  • Christoph Trebesch

Abstract

Top down spillovers of sovereign default risk can have serious consequences for the private sector in emerging markets. This paper analyzes the effects of these spillovers using firm-level data from 31 emerging market economies. We assess how sovereign risk affects corporate access to international capital markets, in the form of external credit (loans and bond issuances) and equity issuances. The study first analyzes the impact of sovereign debt crises during the 1980s and 1990s. It goes on to examine the 1993 to 2007 period, using additional measures of sovereign risk-sovereign bond spreads and sovereign ratings-as explanatory variables. Overall, we find that sovereign default risk is a crucial determinant of private sector access to capital, be it external debt or equity. We also find that crisis resolution patterns matter and that defaults towards private creditors have stronger adverse consequences than defaults to official creditors.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/10.

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Length: 39
Date of creation: 01 Jan 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/10

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Keywords: Capital flows; Emerging markets; Access to capital markets; Corporate sector; Credit risk; External financing; Risk management; Sovereign debt; sovereign default; private sector access; external borrowing; sovereign defaults; international capital markets; debt crises; private creditors; access to international capital markets; sovereign bond; official creditors; sovereign debt crises; debt renegotiations; external capital; stock market; external debt; foreign capital; debt restructuring; global liquidity; corporate bonds; capital market access; bond issues; public debt; debt negotiations; international capital flows; private debt; border capital flows; debt crisis; domestic currency; currency crisis; debt reduction; access to private capital markets; government debt; determinants of capital flows; sovereign borrowers; consumer price index; debt service; net capital flows; foreign bonds; total external debt; capital outflows; capital inflows; corporate loans; sovereign debt restructuring; private capital flows; commercial creditors; current account; domestic credit; capital market imperfections; private sector borrowing; capital controls; foreign loans; risk aversion; central bank; external capital flows; domestic capital; international debt; debt obligations; external finance; domestic capital markets; ratio of debt service to exports; external loans; reserve bank; bond issuance; sovereign debt ? restructuring; aggregate capital flows; stock market capitalization; currency mismatch; debt defaults; capital remains; private debt flows; short-term debt; investor confidence; debt policies; currency crises; treasury securities; debt exchanges; foreign debt; debt intolerance; repayments; debt relief; market debt; equity securities; export revenues; external indebtedness; debtor countries; index option; inflation rate; equity capital;

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References

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Citations

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Cited by:
  1. Christoph Trebesch & Michael G Papaioannou & Udaibir S. Das, 2012. "Sovereign Debt Restructurings 1950-2010," IMF Working Papers 12/203, International Monetary Fund.
  2. Das, Udaibir S. & Oliva, Maria A. & Tsuda, Takahiro, 2012. "Sovereign Risk: A Macro-Financial Perspective," ADBI Working Papers 383, Asian Development Bank Institute.
  3. repec:idb:brikps:82321 is not listed on IDEAS
  4. Zaman, Gheorghe & Georgescu, George, 2011. "Sovereign risk and debt sustainability: warning levels for Romania," MPRA Paper 32924, University Library of Munich, Germany.
  5. Peter Sinclair, 2011. "Deficits, Debts and Defaults - Past, Present and Future," Discussion Papers 11-20, Department of Economics, University of Birmingham.
  6. Dailami, Mansoor, 2010. "Sovereign debt distress and corporate spillover impacts," Policy Research Working Paper Series 5380, The World Bank.
  7. 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.
  8. Gros, Daniel & Alcidi, Cinzia, 2011. "Adjustment Difficulties and Debt Overhangs in the Eurozone Periphery," CEPS Papers 5525, Centre for European Policy Studies.
  9. Altman, Edward & Rijken, Herbert, 2012. "Toward a bottom-up approach to assessing sovereign default risk: an update," Journal of Financial Transformation, Capco Institute, vol. 34, pages 19-29.
  10. Udaibir S. Das & Maria A. Oliva & Takahiro Tsuda, 2012. "Sovereign Risk: A Macro-Financial Perspective," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 8(3), pages 367-392, August.
  11. Dethier, Jean-Jacques & Moore, Alexander, 2012. "Infrastructure in developing countries: An overview of some economic issues," Discussion Papers 123305, University of Bonn, Center for Development Research (ZEF).
  12. Edward I. Altman & Herbert A. Rijken, 2013. "Sovereign default risk assessment," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 5(1/2), pages 6-27.

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