Winners and losers from Sovereign debt inflows: evidence from the stock market

Fernando Broner, Alberto Martin, Lorenzo Pandolfi and Tomas Williams

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We study the effects of sovereign debt inflows on domestic firms. To do so, we exploit episodes of large sovereign debt inflows, which follow the announcements of the inclusion of six emerging countries into major sovereign debt indexes. We find that these events reduce government bond yields, appreciate the domestic currency, and have heterogeneous stock-market effects on domestic firms. Firms operating in tradable industries experience lower returns than firms in non-tradable industries. In addition, financial firms, government-related firms, and firms that rely more on external financing experience higher returns. The effect on financial and government-related firms is stronger in countries that display larger reductions in government bond yields. The effect on tradable firms is stronger in countries that display stronger appreciations. We provide a stylized model that rationalizes these results. Our findings shed novel light on the channels through which sovereign debt inflows affect firms in emerging countries.

Keywords: Sovereign debt; capital inflows; exchange rate; government bond yields; external financial dependence (search for similar items in EconPapers)
JEL-codes: F31 F32 F36 G15 G23 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-cfn, nep-fmk and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Winners and Losers from Sovereign Debt Inflows: Evidence from the Stock Market (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1693

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