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Context 1
... rating history in Latin America and the Caribbean: initial and latest credit rating as of 31 Table 2 Credit rating history in Latin America and the Caribbean: best and worst credit rating assessments by country and agency ........................................................... 15 Table 3 Credit rating history in Latin America and the Caribbean: number of credit rating actions by country and agency ... Table 5 Initial and latest credit ratings by Standard & Poor's as of 31 December 2017 ............. 18 Table 6 Initial and latest credit ratings by Moody's as of 31 December 2017 ............................ 19 Table 7 Initial and latest credit ratings by Fitch as of 31 December 2017 .................................. 21 Table 8 Credit ratings by subregion : 2002, 2007, 2012 and 2017 ....................................... 24 Table 9 Impact of credit ratings on bond spreads: literature comparison (selected papers) ........ 30 Table 10 Estimation time span by country . Table 11 EMBIG spreads (in basis points) by country: descriptive statistics ............................... 32 Table 12 Number of credit rating upgrades and downgrades by agency ...................................... 33 Table 13 Share of credit rating upgrades and downgrades by agency . ...Similar publications
The long-term, stable development of the country, the standard of living of its population is primarily influenced by the ability of the state to fully meet the basic needs of the population, a prominent place among which is the nutritional requirement. At the same time, the level of meeting the population's nutritional requirements is put into pra...
Citations
... Consequently, there was contagion among countries that suffered several modifications in sovereign rating by agencies. Latin American countries have experienced approximately 40 upgrade and downgrade decisions that may have affected the cost of external financing and the stock prices of firms (Bustillo et al., 2018;Freitas & Minardi, 2013;Jesuka & Peixoto, 2022). In this context, this study adopted a three-level hierarchical regression model to find evidence on the implications of sovereign rating variation on the capital structure of Latin American companies, considering the adoption of underexplored best governance practices. ...
... This result may explain the phenomenon observed with the significant reduction in the debt levels of the companies throughout the period analyzed in this study. The negative relationship with governance indicators shows that companies have adopted a cautious strategy in which they avoid getting into debt to protect themselves against the effects of economic instability in Latin American countries that have experienced constant variation of the sovereign rating by the agencies, as noted by Bustillo, Perrotti, and Velloso (2018). ...
This study analyzed the effects of sovereign rating and corporate governance (CG) on the capital structure of Latin American companies. A multilevel regression model was used for 823 companies listed on major Latin American stock exchanges over the period 2004-2018. The results showed that firm level is the most responsible factor for the variation in companies’ capital structure, while country level had the greatest influence on the variation in long-term debt. In the absence of CG mechanisms, sovereign rating is one of the factors not controlled by managers that can explain the capital structure of Latin American companies, which reduce their debt levels to protect themselves in the face of their countries’ sovereign rating variations. The results indicated that, despite having an audit committee and keeping independent members on the committee, firms choose to reduce their debt levels to protect themselves against the constant variations of their countries’ sovereign rating. The results also showed that CG mechanisms do not act in isolation when it comes to reducing agency problems. This research is one of the first studies to provide evidence on the implications of sovereign ratings and CG on the capital structure of firms in Latin America.
Keywords:
corporate governance; capital structure; sovereign rating; Latin America
... Based on this scenario, the rating agencies made several changes to the risk ratings of these countries. Bustillo et al. (2018) showed that on average, Latin American countries underwent 36 upgrade and downgrade decisions between 2010 and 2017, which significantly affected the cost of corporate debt and consequently their performance. ...
Purpose
This paper aims to investigate the impact of sovereign rating and corporate governance on performance of Latin American companies between 2004 and 2018.
Design/methodology/approach
This study performed a multilevel regression with fixed and random coefficients for 823 companies and verified the impacts of country, firm and time levels on the performance variation. The study alternated return on assets and Tobin’ Q as dependent variables and measured governance using the following variables: board size, chief executive officer/chairman duality, CEO/board member duality, dummy for the chairman as a former CEO, audit committee, independence and expertise of the audit committee.
Findings
Latin American companies performed better when their respective countries have a better sovereign rating and when they adopt better board of directors and audit committee mechanisms. Sovereign rating assumes distinct roles depending on the presence or absence of governance variables. Rating and governance may be substitute mechanisms to protect investors.
Originality/value
To the best of the authors’ knowledge, this paper is the first to investigate the impacts of sovereign rating on firm performance in the Latin American scenario. The use of governance metrics – for example, the audit committee expertise and the dummy for chairman as a former CEO – is innovative in Latin American studies.
... Based on this scenario, the rating agencies made several changes to the risk ratings of these countries. Bustillo et al. (2018) showed that on average Latin American countries underwent 36 Upgrade and Downgrade decisions between 2010 and 2017, which significantly affected the cost of corporate debt. ...
This paper investigates the impact of sovereign rating and corporate governance on the leverage and performance of Latin American companies. We performed a multilevel regression with 823 Latin American companies between 2004 and 2018 and verified the impacts of country, firm and time levels on leverage and performance variations. We found that Latin American companies are more leveraged and perform better when their respective countries have a better sovereign rating and when they adopt better board of directors and audit committee mechanisms. Sovereign rating assumes distinct roles depending on the presence or absence of governance variables. Rating and governance may be substitute mechanisms to protect investors. To the best of the authors’ knowledge, this paper is the first to investigate the impacts of sovereign rating on firm leverage and performance in the Latin American scenario, which characterizes the originality of this investigation. The use of governance metrics – for example,
the audit committee expertise and the dummy for Chairman as a former CEO – is innovative in Latin American studies. In addition, this study demonstrates that sovereign rating only affects leverage in the absence of governance constructs.
https://revistas.up.ac.pa/index.php/faeco_sapiens/article/view/3397
This study analyzed the relationship between corporate governance and capital structure, considering the variation of the sovereign rating in Latin America. A multilevel regression model was used for a sample of 823 companies listed on the main Latin American stock exchanges from 2004 to 2018. In the absence of corporate governance mechanisms, the sovereign rating is one of the factors not controlled by managers that can explain the capital structure of Latin American companies, which, through management strategies, reduce their debt levels to protect themselves in the face of the constant variation of the sovereign rating of their respective countries. We found that even having an audit committee and maintaining independent members on it, firms choose to reduce their debt levels, to protect themselves from the instabilities of the funding market.
Keywords: Corporate Governance; Capital structure; Sovereign Rating; Latin America.
For three countries of similar economic characteristics, I ratify previous studies of the impact of fundamental macroeconomic and foreign exchange variables influencing country risk, as captured by the Emerging Market Bond Index (EMBI). I contribute to existing research, first by calculating a proxy of risk I call endogenous risk that analyzes the quarterly variability of economic activity, and second, by calculating a variable of sentiment from Twitter activity. I gauge the impact of both on the country risk metric in addition to variables in existing research about the determinants of country risk. Foreign exchange variables are the most significant determinants of risk for the countries of Colombia and Peru, which actively manage their currency, while Ecuador’s country risk is mostly affected by endogenous risk and macroeconomic fundamentals.
Firm theory studies show that managers have to deal with agency and information asymmetry problems to align their interests with those of shareholders, creditors and stakeholders, while keeping the company valued. Considering the influences of internal and external environments, this study aimed to analyze the relationship between corporate governance, capital structure, sovereign rating and firm performance at multi-country, national and regional levels. In a first step, a multilevel regression model was performed using a sample of 823 Latin American listed companies from 2004 to 2018. In a second step, data from 671 Brazilian listed companies and Brazil's sovereign rating between 2010 and 2017 were considered to analyze the performance behavior at the national and regional levels, more specifically in the Triangulo Mineiro and Alto Paranaíba and southern of Goiás regions. A panel data regression was employed. The results from the first study show that sovereign rating positively impact the capital structure and
the performance of Latin American companies. The board size as well as the dual roles of the CEO / Chairman of the board can destroy firm’s value, while having an independent audit committee can increase both their indebtedness and performance. The evidence found reinforced the agency theory signaling that even with the adoption of good corporate governance practices, the more indebted companies are, the less valued they are. In the second study, at the national level we found that the board size, the audit reputation and sovereign rating positively affects the leverage of Brazilian companies. Return on assets was negatively influenced by the dual roles of the CEO / Chairman of the board and the size of the board, the return on equity is positively affected by the reputation of the audit, the concentration of ownership and control and the duality of CEO / Chairman. At the regional level, it was observed that companies that operate in TMAP and South Goiás regions are more leveraged due to the reputation of the audit and when there is an outsider in the board of directors, in contrast, leverage decreases when the board of directors is large and when there is concentration of ownership and control. Regarding to the performance, it was noted that for these companies ROA is positively influenced by the reputation of the audit and the presence of outsiders on the board, while the dual roles of CEO and Chairman can destroy it. Return on equity increases when there are professional directors on the board of directors, and decreases when there is a concentration of ownership and control.
