International Bank Flows to Emerging Markets: Influence of Sovereign Credit Ratings and Their Regional Spillover Effects
46 Pages Posted: 2 May 2010 Last revised: 3 Oct 2013
Date Written: April 20, 2010
Abstract
We examine whether changes in sovereign credit ratings assessments provided by rating agencies help to determine international bank flows to emerging countries. We focus on the quarterly banking flows of G7 countries to a sample of 55 emerging market borrowers for the period 1995-2008. We find strong evidence indicating that sovereign credit rating revisions have significantly positive influences on international bank flows from developed markets even after extensively controlling for other determinants. In addition, we find strong regional rating spillover effects. In general, ratings improvements in one emerging market region reduces bank flows to the other regions. However, there is evidence of positive ratings spillover effects from Asia Pacific to Eastern Europe. Our findings have important implications for financial institutions management with renewed efforts to strengthen the international banking system.
Keywords: Emerging Markets, Credit Ratings, Ratings Spillover, International Banking, Sovereign Risk
JEL Classification: E44, E65, F33, F34, G15
Suggested Citation: Suggested Citation
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