Sovereign Ceilings “Lite”? The Impact of Sovereign Ratings on Corporate Ratings
Journal of Banking & Finance - Eduardo Borensztein, Kevin Cowan, Patricio Valenzuela
(In Press, Accepted Manuscript)
Although credit rating agencies have gradually moved away from a policy of never rating a corporation above the sovereign (the ‘sovereign ceiling’), it appears that sovereign credit ratings remain a significant determinant of corporate credit ratings. We examine this link using data for advanced and emerging economies over the period of 1995-2009. Our main result is that a sovereign ceiling continues to affect the rating of corporations. The results also suggest that the influence of a sovereign ceiling on corporate ratings remains particularly significant in countries where capital account restrictions are still in place and with high political risk.