New evidence on sovereign to corporate credit rating spill-overs

Hill, P, Bissoondoyal-Bheenick, E and Faff, R 2018, 'New evidence on sovereign to corporate credit rating spill-overs', International Review of Financial Analysis, vol. 55, pp. 209-225.


Document type: Journal Article
Collection: Journal Articles

Title New evidence on sovereign to corporate credit rating spill-overs
Author(s) Hill, P
Bissoondoyal-Bheenick, E
Faff, R
Year 2018
Journal name International Review of Financial Analysis
Volume number 55
Start page 209
End page 225
Total pages 17
Publisher Elsevier BV
Abstract We explore what happens to domestic firm-level ratings around the time of a sovereign-rating action on a day-by-day and country-by-country basis. Our granular approach provides banks and investors with a fuller picture of their sovereign creditexposure and, as such, our analysis might feed into banks' internal modelling of their credit risk exposure for the purpose of determini risk ng regulatory capital, introduced under Basel II. We also provide a novel analysis of any bias in spill-over and we show that, inter alia, the tendency for greater spill-over of negative sovereign-rating actions can largely be accounted for by firm- and sovereign-level factors. However, even after allowing for these factors, some countries suffer from negative bias. The implied higher correlation between sovereign and firm-level ratings in times when countries are in crisis versus when they are in recovery may contribute to quicker and/or deeper crises versus slower and/or longer recoveries.
Subject Finance
Keyword(s) Credit risk
Firm ratings
Rating spill-over effects
Sovereign ratings
DOI - identifier 10.1016/j.irfa.2017.09.004
Copyright notice © 2017 Elsevier Inc. All rights reserved.
ISSN 1057-5219
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