It’s not time to make a change: Sovereign fragility and the corporate credit risk

Fabio Fornari and Andrea Zaghini

Journal of International Money and Finance, 2022, vol. 128, issue C

Abstract: Relying on a perspective borrowed from monetary policy announcements and introducing an econometric twist in the traditional event study analysis, we document the existence of an “event risk transfer”, namely a significant credit risk transmission from the sovereign to the corporate sector after a sovereign rating downgrade. We find that after the delivery of the downgrade, corporate CDS spreads rise by 36% per annum and there is a widespread contagion across countries, in particular among those which were most exposed to the sovereign debt crisis. This effect exists on top of the standard relation between sovereign and corporate credit risk.

Keywords: Sovereign rating; Corporate credit risk; CDS spreads (search for similar items in EconPapers)
Date: 2022
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Working Paper: It’s not time to make a change: sovereign fragility and the corporate credit risk (2022)
Working Paper: It's not time to make a change: Sovereign fragility and the corporate credit risk (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:128:y:2022:i:c:s0261560622001061

DOI: 10.1016/j.jimonfin.2022.102703

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