The Real Effects of Credit Ratings: The Sovereign Ceiling Channel

Heitor Almeida, Igor Cunha, Miguel A. Ferreira, Felipe Restrepo

Research output: Contribution to journalArticle

Abstract

We show that sovereign debt impairments can have a significant effect on financial markets and real economies through a credit ratings channel. Specifically, we find that firms reduce their investment and reliance on credit markets due to a rising cost of debt capital following a sovereign rating downgrade. We identify these effects by exploiting exogenous variation in corporate ratings due to rating agencies' sovereign ceiling policies, which require that firms' ratings remain at or below the sovereign rating of their country of domicile.

LanguageEnglish (US)
Pages249-290
Number of pages42
JournalJournal of Finance
Volume72
Issue number1
DOIs
StatePublished - Feb 1 2017

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Rating
Credit rating
Sovereign ratings
Impairment
Cost of debt
Rating agencies
Credit markets
Financial markets
Sovereign debt

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Almeida, H., Cunha, I., Ferreira, M. A., & Restrepo, F. (2017). The Real Effects of Credit Ratings: The Sovereign Ceiling Channel. Journal of Finance, 72(1), 249-290. DOI: 10.1111/jofi.12434

The Real Effects of Credit Ratings : The Sovereign Ceiling Channel. / Almeida, Heitor; Cunha, Igor; Ferreira, Miguel A.; Restrepo, Felipe.

In: Journal of Finance, Vol. 72, No. 1, 01.02.2017, p. 249-290.

Research output: Contribution to journalArticle

Almeida, H, Cunha, I, Ferreira, MA & Restrepo, F 2017, 'The Real Effects of Credit Ratings: The Sovereign Ceiling Channel' Journal of Finance, vol 72, no. 1, pp. 249-290. DOI: 10.1111/jofi.12434
Almeida H, Cunha I, Ferreira MA, Restrepo F. The Real Effects of Credit Ratings: The Sovereign Ceiling Channel. Journal of Finance. 2017 Feb 1;72(1):249-290. Available from, DOI: 10.1111/jofi.12434
Almeida, Heitor ; Cunha, Igor ; Ferreira, Miguel A. ; Restrepo, Felipe. / The Real Effects of Credit Ratings : The Sovereign Ceiling Channel. In: Journal of Finance. 2017 ; Vol. 72, No. 1. pp. 249-290
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