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Sovereign Bond Spreads and Extra-Financial Performance: An Empirical Analysis of Emerging Markets

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  • Florian Berg
  • Paula Margaretic
  • Sébastien Pouget

Abstract

This paper studies the impact of a country's extra-financial performance on their sovereign bond spreads. Sovereign bond spreads reflect both an economic default risk and a strategic default risk. We hypothesize that a country's extra-financial performance reduces default risk by signaling good commitment ability. We test this hypothesis for the countries which bonds are included in the JP Morgan Emerging Markets Bond Index Global. Over the period from 2001 to 2010, we find that an emerging country's average cost of capital decreases with its environmental and social performance.

Suggested Citation

  • Florian Berg & Paula Margaretic & Sébastien Pouget, 2016. "Sovereign Bond Spreads and Extra-Financial Performance: An Empirical Analysis of Emerging Markets," Working Papers Central Bank of Chile 789, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:789
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    Cited by:

    1. Gunther Capelle-Blancard & Patricia Crifo & Marc-Arthur Diaye & Rim Oueghlissi & Bert Scholtens, 2016. "Environmental, Social and Governance (ESG) performance and sovereign bond spreads: an empirical analysis of OECD countries," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01401718, HAL.

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