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How is a firm’s credit risk affected by sovereign risk?

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  • Breckenfelder, Johannes

Abstract

When a country sees its sovereign credit risk rise, do companies in that country also see their credit risk increase? We show that the answer is yes. Companies with a large public-sector ownership, as well as companies that borrow heavily from banks, are most affected. This suggests that the transmission of credit risk from sovereigns to non-financial companies occurs primarily through a fiscal and a financial channel, and points to the importance of reducing such risk spillovers and thereby overall risk in the economy, e.g. by means of the capital markets union. JEL Classification: F34, F36, G15, H81, G12

Suggested Citation

  • Breckenfelder, Johannes, 2018. "How is a firm’s credit risk affected by sovereign risk?," Research Bulletin, European Central Bank, vol. 53.
  • Handle: RePEc:ecb:ecbrbu:2018:0053:
    Note: 1125999
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    References listed on IDEAS

    as
    1. Bottero, Margherita & Lenzu, Simone & Mezzanotti, Filippo, 2020. "Sovereign debt exposure and the bank lending channel: Impact on credit supply and the real economy," Journal of International Economics, Elsevier, vol. 126(C).
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    More about this item

    Keywords

    credit risk; non-financials; risk transmission; sovereign;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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