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How do sovereign credit rating changes affect private investment?

Sheng-Syan Chen, Hsien-Yi Chen, Chong-Chuo Chang and Shu-Ling Yang

Journal of Banking & Finance, 2013, vol. 37, issue 12, 4820-4833

Abstract: Sovereign credit rating changes have an influence on real private investment of re-rated countries. We find significant increases in private investment growth following upgrades in sovereign ratings. These increases, however, are transitory. We also find significant, temporary declines in private investment growth following sovereign rating downgrades. The results hold after accounting for re-rated countries’ growth opportunities, endogeneity, and other factors that could affect private investment. The irreversible nature of investment may be the explanation for the temporary changes in the growth rates of physical capital investment associated with revisions in sovereign credit ratings.

Keywords: Sovereign credit rating; Private investment; Irreversible investment (search for similar items in EconPapers)
JEL-codes: F21 F34 G11 G24 H63 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:12:p:4820-4833

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