Journal of Finance Vol. 72 No. 1 2017

The Real Effects of Credit Ratings: The Sovereign Ceiling Channel

Heitor Almeida¹; Igor Cunha²; Miguel A. Ferreira²; Felipe Restrepo^3,4,5,6

¹ University of Illinois Urbana-Champaign · ² NOVA School of Business and Economics (NOVA SBE) · ³ Western University · ⁴ Center for Economic and Policy Research · ⁵ University of Illinois Chicago · ⁶ University of Hong Kong

Abstract

We show that sovereign debt impairments can have a significant effect on financial markets and real economies through a credit ratings channel. Specifically, we find that firms reduce their investment and reliance on credit markets due to a rising cost of debt capital following a sovereign rating downgrade. We identify these effects by exploiting exogenous variation in corporate ratings due to rating agencies' sovereign ceiling policies, which require that firms' ratings remain at or below the sovereign rating of their country of domicile.

DOI

10.1111/jofi.12434

Volume

72

Issue

1

Pages

249-290

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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