ISEG 2S | Sovereign and corporate credit risk: Spillover effects in the Eurozone

Speaker
Paolo Colla
Bocconi University

Presentation
Sovereign and corporate credit risk: Spillover effects in the Eurozone

Abstract
We provide empirical evidence for the spillover of credit risk from the sovereign to the non-financial corporate segment using credit default swap (CDS) data for Eurozone entities during the recent turmoil in European debt markets. We show that an increase in sovereign risk is associated with an increase in the credit risk (and, hence, borrowing costs) of non-financial
firms. We also show that a deterioration in a country’s credit quality affects more adversely firms that are government controlled, those whose sales are more concentrated in the domestic market, and those that rely more heavily on bank financing. Our findings suggest that government guarantees, domestic demand, and credit markets are important credit risk
transmission mechanisms.

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ORGANIZING TEAM
This seminars series is organized by Joana Pais (ECO), Raquel M. Gaspar (FIN/MG) and Isabel Proença (QM).

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