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Country and industry effects in corporate bond spreads in emerging markets

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  • Garay, Urbi
  • González, Maximiliano
  • Rosso, John

Abstract

We use corporate bond data from firms belonging to 13 emerging markets and eight industries from 2007 to 2013 to study whether and how country and industry effects determine the spread between their yield and the respective sovereign debt yield. Existing models ignore country and industry effects as they implicitly assume that firm, bond issues, local, and global factors capture these effects. We find that country and, especially, industry effects are significant in explaining corporate bond spreads. From a practitioner's point of view, our results are important as ignoring country and industry effects causes bonds to be mispriced in emerging markets, particularly in the energy, basic materials, and communications and technology sectors. We also find country effects for bonds from firms from Chile, Indonesia, and the Philippines, although with lower significance levels. Finally, and consistent with other recent papers, we also find violations of the sovereign ceiling rule.

Suggested Citation

  • Garay, Urbi & González, Maximiliano & Rosso, John, 2019. "Country and industry effects in corporate bond spreads in emerging markets," Journal of Business Research, Elsevier, vol. 102(C), pages 191-200.
    • Handle: RePEc:eee:jbrese:v:102:y:2019:i:c:p:191-200
    DOI: 10.1016/j.jbusres.2017.09.021
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    More about this item

    Keywords

    Emerging markets; Corporate debt; Sovereign debt; Country and industry effects;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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