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

Fabio Fornari and Andrea Zaghini ()

No 652, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: Relying on a perspective borrowed from monetary policy announcements and introducing an econometric twist in the traditional event study analysis, we doc- ument 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 coun- tries, 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)
JEL-codes: G15 G32 G38 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cfn, nep-fmk and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:652

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