Understanding Corporate Vulnerabilities in Latin America

Carlos Caceres and Fabiano Rodrigues Bastos

No 2016/080, IMF Working Papers from International Monetary Fund

Abstract: This paper analyzes the potential risks and vulnerabilities of non-financial corporates in Latin America and Canada. We quantify the impact of company-specific, countryspecific, and global factors in driving corporate spreads. Overall, we found that all these factors play a role in explaining corporate risk. In particular, country specific factors such as exchange rate and sovereign CDS spreads are significantly associated with changes in corporate spreads, underscoring the importance of solid policy frameworks. We also find that global conditions, such as the VIX, are dominant drivers of corporate spreads. In recent years, the adverse effects from deteriorating domestic conditions have been broadly offset by relatively bening global financial conditions. However, a sustained reversal in these conditions would put significant pressure on corporate risk.

Keywords: WP; CDS spread; terms of trade; commodity price; foreign currency; corporate spread; Corporate risk; market-based measures; fundamentals; implied CDS; sovereign CDS; terms-of-trade index; Credit default swap; Commodity prices; Exchange rate adjustments; Currencies; Exchange rates; Global (search for similar items in EconPapers)
Pages: 34
Date: 2016-04-07
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