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Country and industry effects in corporate bond spreads in emerging markets

Urbi Garay, Maximiliano González and John Rosso

Journal of Business Research, 2019, vol. 102, issue C, 191-200

Abstract: We use corporate bond data from firms belonging to 13 emerging markets and eight industries from 2007 to 2013 to study whether and how country and industry effects determine the spread between their yield and the respective sovereign debt yield. Existing models ignore country and industry effects as they implicitly assume that firm, bond issues, local, and global factors capture these effects. We find that country and, especially, industry effects are significant in explaining corporate bond spreads. From a practitioner's point of view, our results are important as ignoring country and industry effects causes bonds to be mispriced in emerging markets, particularly in the energy, basic materials, and communications and technology sectors. We also find country effects for bonds from firms from Chile, Indonesia, and the Philippines, although with lower significance levels. Finally, and consistent with other recent papers, we also find violations of the sovereign ceiling rule.

Keywords: Emerging markets; Corporate debt; Sovereign debt; Country and industry effects (search for similar items in EconPapers)
JEL-codes: E44 G12 G15 O16 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.jbusres.2017.09.021

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