Sovereign Ceilings "Lite"? T+L3712he Impact of Sovereign Ratingson Corporate Ratings in Emerging Market Economies

Although credit rating agencies have gradually moved away from a policy of never rating a private borrower above the (the sovereign ceiling) it appears that ratings remain a significant determinant of the credit rating assigned to corporations. We examine this link using data for advanced and emerging economies over the past decade and conclude that the ratings have a significant and robust effect on private ratings even after controlling for country specific macroeconomic conditions and firm-level performance indicators. This suggests that public debt management affects the private sector through a channel that had not been previously recognized.