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

By Udaibir S Das, Michael G. Papaioannou, Christoph Trebesch

January 1, 2010

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Udaibir S Das, Michael G. Papaioannou, and Christoph Trebesch. Sovereign Default Risk and Private Sector Access to Capital in Emerging Markets, (USA: International Monetary Fund, 2010) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Balance of payments, Capital flows, Capital markets, Emerging and frontier financial markets, Financial crises, Financial institutions, Financial markets, Stocks

Keywords: Bond debt, Capital flows, Capital markets, Crisis characteristic, Crisis-resolution procedure, Debt crisis, Debt flow, Debt issuance, Debt-crisis characteristic, Debt-crisis dummy, Debt-crisis episode, Debt-crisis period, Debt-restructuring agreement, Debt-restructuring negotiations, Distress episode, Emerging and frontier financial markets, Emerging Markets, Financial market, Global, Private sector access, Sovereign debt issuance, Sovereign default, Stocks, WP

Publication Details

Pages:

39
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/010
Stock No:

WPIEA2010010
ISBN:

9781451961942
ISSN:

1018-5941

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