Sovereign and corporate credit risk: Evidence from the Eurozone

Mascia Bedendo () and Paolo Colla ()
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Mascia Bedendo: Audencia Recherche - Audencia Business School

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Abstract: We study the impact of sovereign risk on the credit risk of the non-financial corporate sector in the Eurozone using credit default swap data. We show that an increase in sovereign credit spreads is associated with a statistically and economically significant increase in corporate spreads and, hence, firms' borrowing costs. A deterioration in a country's credit quality affects more adversely firms that are more likely to benefit from government aid, those whose sales are more concentrated in the domestic market, and those that rely more heavily on bank financing. Our findings suggest that government guarantees, domestic demand, and credit markets are important credit risk transmission mechanisms.

Keywords: sovereign risk; corporate credit risk; credit default swaps; Eurozone (search for similar items in EconPapers)
Date: 2015-08
New Economics Papers: this item is included in nep-ban and nep-eec
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Published in Journal of Corporate Finance, 2015, 33, pp.34-52. ⟨10.1016/j.jcorpfin.2015.04.006⟩

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Journal Article: Sovereign and corporate credit risk: Evidence from the Eurozone (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01157174

DOI: 10.1016/j.jcorpfin.2015.04.006

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