The determinants of corporate risk in emerging markets: an option-adjusted spread analysis
This study explores the determinants of corporate bond spreads in emerging markets economies. Using a largely unexploited data set, the paper finds that corporate bond spreads are determined by firm-specific variables, bond characteristics, macroeconomic conditions, country-specific sovereign risk, and global factors. A variance decomposition analysis shows that firm-level performance indicators account for the larger share of the variance. In addition, the paper finds that corporate spreads respond more acutely to sovereign and global risk increases rather than to decreases. This suggests two asymmetries prevalent in the data. The first is in line with the sovereign ceiling 'lite' hypothesis, which states that it appears from spreads data that sovereign risk remains a significant determinant of corporate risk although credit rating agencies have gradually moved away from a policy of never rating a corporate above the sovereign. The second is consistent with the popular notion that panics are common in emerging markets where investors are less informed and more prone to herding. Copyright © 2009 John Wiley & Sons, Ltd.
Volume (Year): 15 (2010)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.interscience.wiley.com/jpages/1076-9307/|
|Order Information:||Web: http://jws-edcv.wiley.com/jcatalog/JournalsCatalogOrder/JournalOrder?PRINT_ISSN=1076-9307|
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.:
- John Y. Campbell & Glen B. Taksler, 2003.
"Equity Volatility and Corporate Bond Yields,"
Journal of Finance,
American Finance Association, vol. 58(6), pages 2321-2350, December.
- John Y. Campbell & Glen B. Taksler, 2002. "Equity Volatility and Corporate Bond Yields," Harvard Institute of Economic Research Working Papers 1945, Harvard - Institute of Economic Research.
- John Y. Campbell & Glen B. Taksler, 2002. "Equity Volatility and Corporate Bond Yields," NBER Working Papers 8961, National Bureau of Economic Research, Inc.
- Campbell, John & Taksler, Glen, 2003. "Equity Volatility and Corporate Bond Yields," Scholarly Articles 3153307, Harvard University Department of Economics.
- Merton, Robert C, 1974.
"On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,"
Journal of Finance,
American Finance Association, vol. 29(2), pages 449-470, May.
- Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Enrique G. Mendoza & Guillermo A. Calvo, 2000. "Capital-Markets Crises and Economic Collapse in Emerging Markets: An Informational-Frictions Approach," American Economic Review, American Economic Association, vol. 90(2), pages 59-64, May.
- Christopher F Baum & Mark E Schaffer & Steven Stillman, 2002. "IVREG2: Stata module for extended instrumental variables/2SLS and GMM estimation," Statistical Software Components S425401, Boston College Department of Economics, revised 09 Feb 2016.
- Eduardo Borensztein & Patricio A Valenzuela & Kevin Cowan, 2007. "Sovereign Ceilings â€œLiteâ€ ? The Impact of Sovereign Ratings on Corporate Ratings in Emerging Market Economies," IMF Working Papers 07/75, .
- Oriana Bandiera & Gerard Caprio & Patrick Honohan & Fabio Schiantarelli, 2000.
"Does Financial Reform Raise or Reduce Saving?,"
The Review of Economics and Statistics,
MIT Press, vol. 82(2), pages 239-263, May.
- Mitchell A. Petersen, 2009.
"Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches,"
Review of Financial Studies,
Society for Financial Studies, vol. 22(1), pages 435-480, January.
- Mitchell A. Petersen, 2005. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," NBER Working Papers 11280, National Bureau of Economic Research, Inc.
- Durbin, Erik & Ng, David, 2005.
"The sovereign ceiling and emerging market corporate bond spreads,"
Journal of International Money and Finance,
Elsevier, vol. 24(4), pages 631-649, June.
- Durbin, Erik & Ng, David T.C., 2002. "The Sovereign Ceiling and Emerging Market Corporate Bond Spreads," Working Papers 127286, Cornell University, Department of Applied Economics and Management.
- Marcel Peter & MartÃn Grandes, 2005. "How Important Is Sovereign Risk in Determining Corporate Default Premia? The Case of South Africa," IMF Working Papers 05/217, .
- Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2003. "Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters," NBER Working Papers 10036, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:ijf:ijfiec:v:15:y:2010:i:1:p:59-74. 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: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
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.