How do sovereign credit rating changes affect private investment?
Journal
Journal of Banking and Finance
Journal Volume
37
Journal Issue
12
Pages
4820-4833
Date Issued
2013-12
Author(s)
Abstract
Sovereign credit rating changes have an influence on real private investment of re-rated countries. We find significant increases in private investment growth following upgrades in sovereign ratings. These increases, however, are transitory. We also find significant, temporary declines in private investment growth following sovereign rating downgrades. The results hold after accounting for re-rated countries' growth opportunities, endogeneity, and other factors that could affect private investment. The irreversible nature of investment may be the explanation for the temporary changes in the growth rates of physical capital investment associated with revisions in sovereign credit ratings. © 2013 Elsevier B.V.
Subjects
Irreversible investment | Private investment | Sovereign credit rating
Publisher
ELSEVIER
Type
journal article