IDEAS home Printed from https://ideas.repec.org/a/taf/eurjfi/v30y2024i15p1728-1756.html
   My bibliography  Save this article

Corporate sensitivity to sovereign credit distress: the mitigating effects of financial flexibility

Author

Listed:
  • Huong Vu
  • Patrycja Klusak
  • Shee-Yee Khoo
  • Rasha Alsakka

Abstract

This paper investigates the role of financial flexibility in sovereign-corporate rating nexus. Using a panel data of non-financial European firms rated by S&P during 2005–2022, we show that financially flexible firms are more protected from the consequences of sovereign rating downgrades than their financially inflexible counterparts. Financial flexibility becomes particularly valuable for corporates in GIIPS countries, during the European sovereign debt crisis and the COVID-19 pandemic. Finally, private firms benefit more from financial flexibility than public firms due to their financing constraints. Our findings have implications for corporate managers, governments, and regulators alike, as financial flexibility can act as a shield against sovereign risks’ shocks.

Suggested Citation

  • Huong Vu & Patrycja Klusak & Shee-Yee Khoo & Rasha Alsakka, 2024. "Corporate sensitivity to sovereign credit distress: the mitigating effects of financial flexibility," The European Journal of Finance, Taylor & Francis Journals, vol. 30(15), pages 1728-1756, October.
  • Handle: RePEc:taf:eurjfi:v:30:y:2024:i:15:p:1728-1756
    DOI: 10.1080/1351847X.2024.2332718
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1351847X.2024.2332718
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/1351847X.2024.2332718?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:30:y:2024:i:15:p:1728-1756. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REJF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.