THE IMPACT OF SOVEREIGN CREDIT RATINGS ON INTEREST RATES IN EMERGING ECONOMIES – CASE FROM GEORGIA

Davit Lomadze and Vakhtang Berishvili
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Davit Lomadze: Caucasus University, Caucasus School of Business, Tbilisi, Georgia
Vakhtang Berishvili: Caucasus University, Caucasus School of Business, Tbilisi, Georgia

Journal of Financial and Monetary Economics, 2024, vol. 12, issue 1, 115-125

Abstract: This study examines the impact of sovereign credit ratings on corporate loan interest rates in Georgia, focusing on the relationship between credit rating announcements and economic variables. Utilizing event study methodology and multiple linear regression with dummy variables, the research analyzes 32 Fitch credit rating announcements from July 2007 to January 2024. The study uses abnormal return analysis by Constant return and Market-adjusted models based on data of corporate loan interest rates and incorporates market rates based on U.S. Treasury bond yields. Key findings reveal a strong correlation (0.82) between Fitch's credit rating scores and corporate loan interest rates, with regression models demonstrating statistically significant results when incorporating two-month anticipation and three-month adjustment periods. Research is unique for Georgian context and provides noteworthy information for financial market participants, policy makers and academics.

Keywords: country risk; sovereign credit ratings; event study; corporate loan interest rates; abnormal return analysis (search for similar items in EconPapers)
JEL-codes: E37 E43 G14 (search for similar items in EconPapers)
Date: 2024
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