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Sovereign ceilings “lite”? The impact of sovereign ratings on corporate ratings

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  • Borensztein, Eduardo
  • Cowan, Kevin
  • Valenzuela, Patricio

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.

Suggested Citation

  • Borensztein, Eduardo & Cowan, Kevin & Valenzuela, Patricio, 2013. "Sovereign ceilings “lite”? The impact of sovereign ratings on corporate ratings," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4014-4024.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:11:p:4014-4024
    DOI: 10.1016/j.jbankfin.2013.07.006
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    More about this item

    Keywords

    Credit risk; Sovereign risk; Credit ratings; Sovereign ceiling;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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