The Real Effects of Sovereign Credit Rating Downgrades∗
نویسندگان
چکیده
We study the effect of sovereign credit rating downgrades on firm investment and financial policy. We identify causal effects by exploiting the effect of sovereign downgrades on corporate ratings that is due to sovereign ceiling policies followed by rating agencies. We find that sovereign downgrades lead to greater decreases in investment and leverage of firms that are at the sovereign rating bound relative to otherwise similar firms below the bound. Consistent with a contraction in capital supply, bond yield spreads of firms at the bound increase relative to firms below the bound. Our findings suggest that public debt management generates negative externalities for the private sector and real economic activity. JEL classification: G24, G28, G31, G32, H63
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