 Regulation and information costs of sovereign distress: Evidence from corporate lending marketsIftekhar Hasan, Suk-Joong Kim, Panagiotis N. Politsidis and Eliza Wu Journal of Corporate Finance, 2023, vol. 82, issue C Abstract: We examine the effect of sovereign credit impairments on the pricing of syndicated loans following rating downgrades in the borrowing firms' countries of domicile. We find that the sovereign ceiling policies used by credit rating agencies create a disproportionately adverse impact on the bounded firms' borrowing costs relative to other domestic firms following their sovereign's rating downgrade. Rating-based regulatory frictions partially explain our results. On the supply-side, loans carry a higher spread when granted from low-capital banks, non-bank lenders, and banks with high market power. We further document an operating demand-side channel, contingent on borrowers' size, financial constraints, and global diversification. Our results can be attributed to the relative bargaining power between lenders and borrowers: relationship borrowers and non-bank dependent borrowers with alternative financing sources are much less affected. Keywords: Credit ratings; Sovereign ceiling; Syndicated loan pricing; Rating-based regulation; Firm credit constraints; Bank dependency; Bargaining power (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:82:y:2023:i:c:s0929119923001177 DOI: 10.1016/j.jcorpfin.2023.102468 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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