Advanced Search
MyIDEAS: Login to save this paper or follow this series

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

Contents:

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=23510
Download Restriction: no

Bibliographic Info

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

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

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

Related research

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;

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Papaioannou, Elias, 2005. "What drives international bank flows? Politics, institutions and other determinants," Working Paper Series, European Central Bank 0437, European Central Bank.
  2. Jose Vicente Martinez and Guido Sandleris, 2008. "Is it Punishment? Sovereign Defaults and the Decline in Trade," Business School Working Papers, Universidad Torcuato Di Tella 2008-01, Universidad Torcuato Di Tella.
  3. Guillermo A. Calvo & Alejandro Izquierdo & Luis Fernando Mejía, 2008. "Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration," Research Department Publications, Inter-American Development Bank, Research Department 4581, Inter-American Development Bank, Research Department.
  4. Enrique G. Mendoza & Vivian Z. Yue, 2008. "A Solution to the Disconnect between Country Risk and Business Cycle Theories," NBER Working Papers 13861, National Bureau of Economic Research, Inc.
  5. R. Gaston Gelos & Shang-Jin Wei, 2005. "Transparency and International Portfolio Holdings," Journal of Finance, American Finance Association, American Finance Association, vol. 60(6), pages 2987-3020, December.
  6. Busse, Matthias & Hefeker, Carsten, 2007. "Political risk, institutions and foreign direct investment," European Journal of Political Economy, Elsevier, Elsevier, vol. 23(2), pages 397-415, June.
  7. Reinhart, Carmen & Rogoff, Kenneth, 2004. "Serial default and the “paradox” of rich to poor capital flows," MPRA Paper 13997, University Library of Munich, Germany.
  8. Andrew K. Rose, 2002. "One Reason Countries Pay their Debts: Renegotiation and International Trade," EUI-RSCAS Working Papers, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) 18, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  9. Philip Lane & Gian Maria Milesi-Ferretti, 2001. "THE EXTERNAL WEALTH OF NATIONS: Measures of Foreign Assets and Liabilities For Industrial and Developing Countries," Trinity Economics Papers, Trinity College Dublin, Department of Economics 20014, Trinity College Dublin, Department of Economics.
  10. Carlos Arteta & Galina Hale, 2006. "Sovereign debt crises and credit to the private sector," Working Paper Series, Federal Reserve Bank of San Francisco 2006-21, Federal Reserve Bank of San Francisco.
  11. Ana Fostel & Graciela Kaminsk, 2007. "Latin America's Access to International Capital Markets: Good Behavior or Global Liquidity?," Working Papers Central Bank of Chile, Central Bank of Chile 442, Central Bank of Chile.
  12. John Geanakoplos & Ana Fostel, 2008. "Leverage Cycles and the Anxious Economy," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1211-44, September.
  13. Jeffrey A. Frankel & Eduardo A. Cavallo, 2004. "Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, Or Less? Using Gravity to Establish Causality," NBER Working Papers 10957, National Bureau of Economic Research, Inc.
  14. Fuentes, Miguel & Saravia, Diego, 2010. "Sovereign defaulters: Do international capital markets punish them?," Journal of Development Economics, Elsevier, Elsevier, vol. 91(2), pages 336-347, March.
  15. Eichengreen, Barry & Mody, Ashoka, 1999. "Lending booms, reserves, and the sustainability of short-term debt - inferences from the pricing of syndicated bank loans," Policy Research Working Paper Series 2155, The World Bank.
  16. Aitor Erce, 2008. "A structural model of sovereign debt issuance: assessing the role of financial factors," Banco de Espa�a Working Papers 0809, Banco de Espa�a.
  17. Kim, Suk-Joong & Wu, Eliza, 2008. "Sovereign credit ratings, capital flows and financial sector development in emerging markets," Emerging Markets Review, Elsevier, Elsevier, vol. 9(1), pages 17-39, March.
  18. Magdalena Polan & Parmeshwar Ramlogan & Carlos I. Medeiros, 2007. "A Primeron Sovereign Debt Buybacks and Swaps," IMF Working Papers 07/58, International Monetary Fund.
  19. Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2009. "The Economics and Law of Sovereign Debt and Default," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 47(3), pages 651-98, September.
  20. Nada Mora & Ratna Sahay & Jeromin Zettelmeyer & Pietro Garibaldi, 2002. "What Moves Capital to Transition Economies?," IMF Working Papers 02/64, International Monetary Fund.
  21. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2008. "Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 347-368, May.
  22. Eduardo Borensztein & Patricio Valenzuela & Kevin Cowan, 2007. "Sovereign Ceilings "Lite"? T+L3712he Impact of Sovereign Ratingson Corporate Ratings in Emerging Market Economies," IMF Working Papers 07/75, International Monetary Fund.
  23. Rui Albuquerque, 2004. "The Composition of International Capital Flows: Risk Sharing Through Foreign Direct Investment," International Finance, EconWPA 0405004, EconWPA.
  24. Michael D. Bordo & Ashoka Mody & Nienke Oomes, 2004. "Keeping Capital Flowing: The Role of the IMF," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 7(3), pages 421-450, December.
  25. Eduardo Borensztein & Ugo Panizza, 2008. "The Costs of Sovereign Default," IMF Working Papers 08/238, International Monetary Fund.
  26. Rohan Pitchford & Mark L. J. Wright, 2010. "Holdouts in Sovereign Debt Restructuring: A Theory of Negotiation in a Weak Contractual Environment," NBER Working Papers 16632, National Bureau of Economic Research, Inc.
  27. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  28. Graciela Kaminsky & Sergio L. Schmukler, 2002. "Emerging Market Instability: Do Sovereign Ratings Affect Country Risk and Stock Returns?," World Bank Economic Review, World Bank Group, World Bank Group, vol. 16(2), pages 171-195, August.
  29. Galina Hale & Carlos Arteta, 2007. "Currency crises and foreign credit in emerging markets: credit crunch or demand effect?," Working Paper Series, Federal Reserve Bank of San Francisco 2007-02, Federal Reserve Bank of San Francisco.
  30. Bevan, Alan A. & Estrin, Saul, 2004. "The determinants of foreign direct investment into European transition economies," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 775-787, December.
  31. Axel Dreher, 2004. "IMF and Economic Growth: The Effects of Programs, Loans, and Compliance with Conditionality," International Finance, EconWPA 0404004, EconWPA, revised 25 Apr 2004.
  32. Reinhart, Carmen & Montiel, Peter, 1999. "Do capital controls influence the volume and composition of capital flows? Evidence from the 1990s," MPRA Paper 13710, University Library of Munich, Germany.
  33. Mody, Ashoka & Taylor, Mark P & Kim, Jung Yeon, 2001. "Modelling Fundamentals for Forecasting Capital Flows to Emerging Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 6(3), pages 201-16, July.
  34. Bruce A. Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," NBER Working Papers 11299, National Bureau of Economic Research, Inc.
  35. Enrique G. Mandoza & Vivian Z. Yue, 2008. "A solution to the default risk-business cycle disconnect," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 924, Board of Governors of the Federal Reserve System (U.S.).
  36. Michael Gapen & Dale Gray & Cheng Hoon Lim & Yingbin Xiao, 2008. "Measuring and Analyzing Sovereign Risk with Contingent Claims," IMF Staff Papers, Palgrave Macmillan, vol. 55(1), pages 109-148, April.
  37. Christian Daude & Ernesto Stein, 2007. "The Quality Of Institutions And Foreign Direct Investment," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 19(3), pages 317-344, November.
  38. Ugo Panizza & Eduardo Levy Yeyati, 2006. "The Elusive Costs of Sovereign Defaults," Research Department Publications, Inter-American Development Bank, Research Department 4485, Inter-American Development Bank, Research Department.
  39. Amadou N. R. Sy & Andrea Pescatori, 2004. "Debt Crises and the Development of International Capital Markets," IMF Working Papers 04/44, International Monetary Fund.
  40. Trebesch, Christoph, 2008. "Delays in Sovereign Debt Restructurings. Should we really blame the creditors?," Proceedings of the German Development Economics Conference, Zurich 2008 44, Verein für Socialpolitik, Research Committee Development Economics.
  41. R Portes & H Rey, 2000. "The Determinants Of Cross-Border Equity Flows," CEP Discussion Papers, Centre for Economic Performance, LSE dp0446, Centre for Economic Performance, LSE.
  42. Ratha, Dilip & De, Prabal K. & Mohapatra, Sanket, 2011. "Shadow Sovereign Ratings for Unrated Developing Countries," World Development, Elsevier, Elsevier, vol. 39(3), pages 295-307, March.
  43. Michael Tomz & Mark L. J. Wright, 2007. "Do Countries Default in "Bad Times" ?," Journal of the European Economic Association, MIT Press, MIT Press, vol. 5(2-3), pages 352-360, 04-05.
  44. Christian Daude & Marcel Fratzscher, 2007. "The pecking order of cross-border investment," CGFS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Research on global financial stability: the use of BIS international financial statistics, volume 29, pages 53-89 Bank for International Settlements.
  45. Michael D. Bordo & Ashoka Mody & Nienke Oomes, 2004. "Keeping Capital Flowing," IMF Working Papers 04/197, International Monetary Fund.
  46. Guido M. Sandleris, 2005. "Sovereign Defaults: Information, Investment and Credit," 2005 Meeting Papers, Society for Economic Dynamics 21, Society for Economic Dynamics.
  47. Beck, T.H.L. & Demirgüç-Kunt, A. & Levine, R., 2000. "A new database on financial development and structure," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125518, Tilburg University.
  48. Montiel, Peter & Reinhart, Carmen M., 1999. "Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(4), pages 619-635, August.
  49. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
  50. Portes, Richard & Rey, Helene & Oh, Yonghyup, 2001. "Information and capital flows: The determinants of transactions in financial assets," European Economic Review, Elsevier, Elsevier, vol. 45(4-6), pages 783-796, May.
  51. repec:nbr:nberwo:13194 is not listed on IDEAS
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Dailami, Mansoor, 2010. "Sovereign debt distress and corporate spillover impacts," Policy Research Working Paper Series 5380, The World Bank.
  2. Daniel Gros & Cianzia Alcidi, 2011. "Adjustment Difficulties and Debt Overhangs in the Eurozone Periphery," Working Papers LuissLab, Dipartimento di Economia e Finanza, LUISS Guido Carli 1192, Dipartimento di Economia e Finanza, LUISS Guido Carli.
  3. Dethier, Jean-Jacques & Moore, Alexander, 2012. "Infrastructure in developing countries: An overview of some economic issues," Discussion Papers, University of Bonn, Center for Development Research (ZEF) 123305, University of Bonn, Center for Development Research (ZEF).
  4. 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.
  5. Peter Sinclair, 2011. "Deficits, Debts and Defaults - Past, Present and Future," Discussion Papers, Department of Economics, University of Birmingham 11-20, Department of Economics, University of Birmingham.
  6. Das, Udaibir S. & Oliva, Maria A. & Tsuda, Takahiro, 2012. "Sovereign Risk: A Macro-Financial Perspective," ADBI Working Papers, Asian Development Bank Institute 383, Asian Development Bank Institute.
  7. Altman, Edward & Rijken, Herbert, 2012. "Toward a bottom-up approach to assessing sovereign default risk: an update," Journal of Financial Transformation, Capco Institute, Capco Institute, vol. 34, pages 19-29.
  8. 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, Policy Research Institute, Ministry of Finance Japan, vol. 8(3), pages 367-392, August.
  9. 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, Elsevier, vol. 23(2), pages 64-74.
  10. repec:idb:brikps:82321 is not listed on IDEAS
  11. Zaman, Gheorghe & Georgescu, George, 2011. "Sovereign risk and debt sustainability: warning levels for Romania," MPRA Paper 32924, University Library of Munich, Germany.
  12. Christoph Trebesch & Michael G Papaioannou & Udaibir S. Das, 2012. "Sovereign Debt Restructurings 1950-2010," IMF Working Papers 12/203, International Monetary Fund.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:10/10. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.