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

Research Bulletin, 2018, vol. 53

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

Keywords: credit risk; non-financials; risk transmission; sovereign (search for similar items in EconPapers)
Date: 2018-12
Note: 1125999
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