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In Search of Distress Risk in Emerging Markets

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  • Gonzalo Asis
  • Anusha Chari
  • Adam Haas

Abstract

This paper employs a novel multi-country dataset of corporate defaults to develop a model of distress risk specific to emerging markets. The data suggest that global financial variables such as US interest rates and shifts in global liquidity and risk aversion have significant predictive power for forecasting corporate distress risk in emerging markets. We document a positive distress risk premium in emerging market equities and show that the impact of a global "risk-off" environment on default risk is greater for firms whose returns are more sensitive to a composite global factor.

Suggested Citation

  • Gonzalo Asis & Anusha Chari & Adam Haas, 2020. "In Search of Distress Risk in Emerging Markets," NBER Working Papers 27213, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27213
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    1. Ho, Kung-Cheng & Yen, Huang-Ping & Lu, Canyi & Lee, Shih-Cheng, 2023. "Does information disclosure and transparency ranking system prevent the default risk of a firm?," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1089-1105.
    2. Li, Xiang & Su, Dan, 2022. "Surges and instability: The maturity shortening channel," Journal of International Economics, Elsevier, vol. 139(C).
    3. Jose E. Gomez-Gonzalez & Jorge M. Uribe & Oscar M. Valencia, 2023. "Risk spillovers between global corporations and Latin American sovereigns: global factors matter," Applied Economics, Taylor & Francis Journals, vol. 55(13), pages 1477-1496, March.
    4. Abraham,Facundo & Cortina Lorente,Juan Jose & Schmukler,Sergio L., 2020. "Growth of Global Corporate Debt : Main Facts and Policy Challenges," Policy Research Working Paper Series 9394, The World Bank.
    5. Liu, Xiaoqun & Zhang, Yuchen & Tian, Mengqiao & Chao, Youcong, 2023. "Financial distress and jump tail risk: Evidence from China's listed companies," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 316-336.
    6. Sanjay Sehgal & Ritesh Kumar Mishra & Ajay Jaisawal, 2021. "A search for macroeconomic determinants of corporate financial distress," Indian Economic Review, Springer, vol. 56(2), pages 435-461, December.

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    JEL classification:

    • F3 - International Economics - - International Finance
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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