Transfer of reputation: Multinational banks and perceived creditworthiness of transition countries

Jana Grittersov�
Authors registered in the RePEc Author Service: Jana Grittersova

Review of International Political Economy, 2014, vol. 21, issue 4, 878-912

Abstract: How do international investors evaluate sovereign borrowers whose histories and institutions are too new or weak to send strong signals about their creditworthiness? In this paper, I suggest that the perceived creditworthiness of many transition countries' governments rests on a 'transfer' of good reputation from prestigious multinational banks, as foreign direct investors. The entry of reputable foreign banks into a transition country signals to international financial markets about the financial strength of that host economy. It also involves the transfer of the status of lender of last resort to the foreign parent bank. Foreign bank penetration can thus create optimistic expectations about a host country's capacity to service its sovereign debt. Using panel data for 23 transition economies during the period of 1996-2009, my empirical results provide support for the argument stressing the exogenous role of foreign financiers as enhancers of the credibility of host country governments. The results are robust to instrumental variable analysis and the inclusion of number of controls for alternative determinants of investors' perceptions of country risk. This proposition is further backed by evidence from three transition countries: Hungary, Estonia and Ukraine.

Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1080/09692290.2013.848373 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:rripxx:v:21:y:2014:i:4:p:878-912

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rrip20

DOI: 10.1080/09692290.2013.848373

Access Statistics for this article

Review of International Political Economy is currently edited by Gregory Chin, Juliet Johnson, Daniel Mügge, Kevin Gallagher, Ilene Grabel and Cornelia Woll

More articles in Review of International Political Economy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().