The Sovereign Effect on Bank Credit Ratings

Huang, Yu-Li; Shen, Chung‐Hua

doi:10.1007/s10693-014-0193-7

Cited by 30 publications

(25 citation statements)

References 40 publications

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“…The sample only includes financial institutions because there is a far stronger link between sovereigns and banks than corporations (see Borensztein et al, 2013;Huang and Shen, 2014 to be rescued by governments during financial distress periods. Further, banks are typically more likely than corporations to be rated at the sovereign ceiling (e.g.…”

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confidence: 99%

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Does sovereign creditworthiness affect bank valuations in emerging markets?

Williams

Alsakka

Gwilym

2015

Journal of International Financial Markets, Institutions and Mo

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confidence: 99%

“…Further, banks are typically more likely than corporations to be rated at the sovereign ceiling (e.g. Huang and Shen, 2014). Borensztein et al (2013) find that the links between corporate and sovereign risks are more significant in countries where capital account restrictions are in place and in countries with high political risk.…”

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confidence: 99%

Does sovereign creditworthiness affect bank valuations in emerging markets?

Williams

Alsakka

Gwilym

2015

Journal of International Financial Markets, Institutions and Mo

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“…Fourth, the distinction between positive and negative spillovers deserves further investigation in the sovereign sphere because of the sovereign rating ceiling effect (e.g. Adelino and Ferreira, 2016;Almeida et al, 2017;Borensztein et al, 2013;Huang and Shen, 2015).…”

Section: Prior Academic Researchmentioning

confidence: 99%

“…Sovereign rating actions very frequently drive rating actions at the corporate and bank levels (e.g. Adelino and Ferreira, 2016;Almeida et al, 2017;Borenzstein et al, 2013;Huang and Shen, 2015). In addition, banks are strongly affected by sovereign rating actions for their home country and internationally, due to their holdings of sovereign debt, collateral, and implicit government guarantees (e.g.…”

Section: Introductionmentioning

confidence: 99%

The influence of rating levels and rating convergence on the spillover effects of sovereign credit actions

Romero

Alsakka

Gwilym

2018

Journal of International Money and Finance

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Peer reviewed versionCyswllt i'r cyhoeddiad / Link to publication Dyfyniad o'r fersiwn a gyhoeddwyd / Citation for published version (APA): Abad, P., Alsakka, R., & ap Gwilym, O. (2018). The influence of rating levels and rating convergence on the spillover effects of sovereign credit actions. Journal of International Money and Finance, 85, 40-57. https://doi. AbstractThis paper assesses contagion and competition as alternative types of stock market spillovers arising from sovereign rating actions. Our research design is based on the premise that the type of spillover effects within and between groups of countries will be influenced by the sovereign rating level, split ratings and the extent of rating convergence i.e. specific types of rating action will induce different and/or stronger effects. The results reveal a clear pattern whereby downgrades of high-rated countries induce contagion to both high and low-rated countries, while downgrades of low-rated countries reveal the opposite i.e. they induce competitive effects. Split ratings are found to intensify stock market spillover effects. Rating convergence/divergence across similarly-rated sovereigns has a meaningful influence on the spillover effects. For the downgrades of high-rated countries, rating convergence mitigates the contagion effect to other high-rated countries in the region, but has very limited effect on the contagion to low-rated countries. For downgrades of low-rated countries, rating convergence strengthens the competitive effect on other low-rated countries but has little effect on the competitive impact on high-rated countries.JEL classification: G11, G14, G15.

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“…The credit rating of an emerging market sovereign is a key factor influencing the ratings of subsovereign entities including non-financial corporations, banks, public sector enterprises, and local governments. 1 Several recent studies have demonstrated the impact of sovereign credit ratings on corporate ratings (Ferri and Liu, 2003;Borensztein, Cowan and Valenzuela, 2013), on bank credit ratings (Alsakka, ap Gwilym and Vu, 2014;Huang and Shen, 2014), on bank stock returns (Correa et al 2014), and on real economic activities (Almeida et al, 2016). Other related studies have considered the implications of changes in sovereign yield spreads for corporate borrowing costs in developed countries (Bedendo and Colla, 2015) and in developing countries (Durbin and Ng 2005;Dailami, 2010;Dittmar and Yuan, 2008).…”

Section: Introductionmentioning

confidence: 99%

Determinants of the distance between sovereign credit ratings and sub-sovereign bond ratings: Evidence from emerging markets and developing economies

2017

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This paper explores factors that affect the distance between sovereign credit ratings and the ratings assigned to new foreign-currency bonds issued by sub-sovereign entities (such as private non-financial corporations, financial firms, and public sector enterprises) in 47 emerging markets and developing economies. Censored and double-hurdle regression models are used to estimate the relative contributions of bond-level, issuer-level, and macroeconomic factors that determine this distance, separately for those rated at or below the sovereign rating and those rated above. For the three-quarters or more of sub-sovereign bond ratings that are constrained by the sovereign rating ceiling, a Tobit regression model shows a smaller distance-suggesting stronger sovereign-corporate linkages-for public sector enterprises and financial firms relative to other firms. Riskier global financial conditions are also associated with sub-sovereign bonds being rated closer to the sovereign rating. For the small number of sub-sovereign bonds rated higher than the sovereign rating, a double-hurdle model shows that certain debt features-such as bonds backed by future-flow receivables or other collateral, or structured as Special Purpose Vehicles (SPV)-significantly raise the likelihood of piercing the sovereign rating ceiling and also increase the distance above the sovereign ceiling.

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The Sovereign Effect on Bank Credit Ratings

Cited by 30 publications

References 40 publications

Does sovereign creditworthiness affect bank valuations in emerging markets?

Does sovereign creditworthiness affect bank valuations in emerging markets?

The influence of rating levels and rating convergence on the spillover effects of sovereign credit actions

Determinants of the distance between sovereign credit ratings and sub-sovereign bond ratings: Evidence from emerging markets and developing economies

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