Quality of government institutions and spreads on sovereign credit default swaps
Journal
Journal of International Money and Finance
Journal Volume
87
Pages
82-95
Date Issued
2018-10
Author(s)
Chen, Hsien Yi
Abstract
We examine how the quality of government institutions affects the likelihood of sovereign default. We find both economically and statistically significant adverse effects of country governance indicators on sovereign credit default swap spreads. The evidence suggests that better-quality governance enhances a country's willingness to repay debt, and hence reduces the probability of sovereign default. The results still hold after we account for potential endogeneity and conduct a number of robustness tests.
Subjects
Credit risk | Institutional quality | Sovereign default
Publisher
ELSEVIER SCI LTD
Type
journal article