Using a new dataset on corporate bonds placed in international markets by emerging and developed borrowers, this article demonstrates that a high proportion of short-term debt exacerbates the effect of debt market illiquidity on corporate bond spreads. This effect is present during both periods of financial stability and of financial distress, and it is smaller in the banking sector than in other sectors. The article’s major finding is robust when controlling for potential endogeneity. Moreover, the results are consistent with the predictions of structural credit risk models that argue that a higher proportion of short-term debt increases a firm’s exposure to debt market illiquidity through a “rollover risk” channel.

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.