Sovereign Default Risk and Private Sector Access to Capital in Emerging Markets

Udaibir Das, Michael Papaioannou and Christoph Trebesch

No 2010/010, IMF Working Papers from International Monetary Fund

Abstract: Top down spillovers of sovereign default risk can have serious consequences for the private sector in emerging markets. This paper analyzes the effects of these spillovers using firm-level data from 31 emerging market economies. We assess how sovereign risk affects corporate access to international capital markets, in the form of external credit (loans and bond issuances) and equity issuances. The study first analyzes the impact of sovereign debt crises during the 1980s and 1990s. It goes on to examine the 1993 to 2007 period, using additional measures of sovereign risk-sovereign bond spreads and sovereign ratings-as explanatory variables. Overall, we find that sovereign default risk is a crucial determinant of private sector access to capital, be it external debt or equity. We also find that crisis resolution patterns matter and that defaults towards private creditors have stronger adverse consequences than defaults to official creditors.

Keywords: WP; debt crisis; debt-crisis characteristic; crisis-resolution procedure; financial market; Sovereign default; Private sector access; Capital flows; Emerging Markets; debt-crisis episode; debt-crisis dummy; distress episode; crisis characteristic; debt-restructuring negotiations; debt-crisis period; debt issuance; bond debt; debt-restructuring agreement; debt flow; sovereign debt issuance; Emerging and frontier financial markets; Capital markets; Stocks; Global (search for similar items in EconPapers)
Pages: 39
Date: 2010-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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