We use new data to examine whether credit guarantees affect economic incentives and whether they affect the credit available to small- and medium-size enterprises (SMEs). We find that firms that have both guaranteed and non-guaranteed loans are 1.67% more likely to miss payments on their guaranteed loans, but are not more likely to default on these loans. These findings suggest that guarantees affect firms’ incentives to repay loans but not their long-term performance. We also find that firms selected into the guarantee programs are 1.17% more likely to default on their loans compared with similar firms that borrow without guarantees. Since we find evidence that long-term performance is not affected by guarantees, the higher default rates among firms selected into the guarantee programs must be the consequence of adverse selection. We also find that credit guarantees increase the aggregated amount of credit; in particular, one additional dollar of guarantees increases the total credit for SMEs by US$ 0.65.

Emerging markets firms often carry foreign-currency debt on their balance sheets. Following a depreciation, the expanding “peso” value of “dollar” liabilities could, via a net-worth effect, offset the expansionary competitiveness effect. To assess which effect dominates, we use accounting data (including the currency composition of liabilities) for 450+ nonfinancial firms in five Latin American countries in the 1990s. We find that firms holding more dollar debt do not invest less than their peso-indebted counterparts following a depreciation. We also show that these firms match the currency denomination of their liabilities with the exchange rate sensitivity of their profits.

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.

This paper assesses the spillovers from the global financial crisis on the cost and structure of cross-border funding of Chilean banks. To do so, it uses a novel dataset of individual lending operations between Chilean banks and their foreign counterparties between 2008 and 2016. The paper finds that global banks that experienced the largest hikes in their funding costs and were based in countries with large increases in sovereign risk increased spreads to Chilean banks most in this period, and that global financial turbulences also spilled through to the funding cost of Chilean banks. After the financial crisis of 2008 and 2009 the Chilean banking system underwent a significant change in its sources of funding, with a shift to new bank counterparties and a higher reliance on bond financing. The paper provides evidence that distance, as well as the intensity and age of banking relationships matter for the cost of cross border borrowing. Hence, this shift of sources of funding was initially a costly process. Over time as banking relationships developed with new counterparties, the cost of this shift decreased.