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Economic uncertainty and credit risk: Evidence from international corporate bonds

Author

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  • Valenzuela, Patricio
  • Mella, Javier
  • Claveria, Juan

Abstract

Credit spreads are positively associated with economic policy uncertainty. This association is stronger in developing countries and countries with French-origin legal systems and worse sovereign credit ratings. This relation is also stronger for firms that usually face worse credit conditions.

Suggested Citation

  • Valenzuela, Patricio & Mella, Javier & Claveria, Juan, 2024. "Economic uncertainty and credit risk: Evidence from international corporate bonds," Economics Letters, Elsevier, vol. 237(C).
    • Handle: RePEc:eee:ecolet:v:237:y:2024:i:c:s0165176524001496
    DOI: 10.1016/j.econlet.2024.111666
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    References listed on IDEAS

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    1. Borensztein, Eduardo & Cowan, Kevin & Valenzuela, Patricio, 2013. "Sovereign ceilings “lite”? The impact of sovereign ratings on corporate ratings," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4014-4024.
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    6. Patricio Valenzuela, 2016. "Rollover Risk and Credit Spreads: Evidence from International Corporate Bonds," Review of Finance, European Finance Association, vol. 20(2), pages 631-661.
    7. Francis A. Longstaff & Jun Pan & Lasse H. Pedersen & Kenneth J. Singleton, 2011. "How Sovereign Is Sovereign Credit Risk?," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 75-103, April.
    8. Eugenia Andreasen & Martin Schindler & Patricio Valenzuela, 2019. "Capital Controls and the Cost of Debt," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(2), pages 288-314, June.
    9. Liu, Jinyu & Zhong, Rui, 2017. "Political uncertainty and a firm's credit risk: Evidence from the international CDS market," Journal of Financial Stability, Elsevier, vol. 30(C), pages 53-66.
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    11. Balcilar, Mehmet & Usman, Ojonugwa & Gungor, Hasan & Roubaud, David & Wohar, Mark E., 2021. "Role of global, regional, and advanced market economic policy uncertainty on bond spreads in emerging markets," Economic Modelling, Elsevier, vol. 102(C).
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    13. Pan, Wei-Fong & Wang, Xinjie & Xiao, Yaqing & Xu, Weike & Zhang, Jinfan, 2024. "The effect of economic and political uncertainty on sovereign CDS spreads," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 143-155.
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    More about this item

    Keywords

    Bond spreads; Credit ratings; Default risk; Uncertainty;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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