Winners and Losers from Sovereign Debt Inflows / Fernando Broner, Alberto Martin, Lorenzo Pandolfi, Tomas Williams.

Format:

Book

Author/Creator:

Broner, Fernando.

Contributor:

National Bureau of Economic Research.

Martin, Alberto.

Pandolfi, Lorenzo.

Williams, Tomas.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27772.

NBER working paper series no. w27772

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

We study the transmission of sovereign debt inflow shocks on domestic firms. We exploit episodes of large sovereign debt inflows in six emerging countries that are due to the announcements of these countries' inclusion in two major local-currency sovereign debt indexes. We show that these episodes significantly reduce government bond yields and appreciate the domestic currency, and have heterogeneous stock market effects on domestic firms. Firms operating in tradable industries experience lower abnormal returns than firms in non-tradable industries. In addition, financial, government-related, and firms that rely more on external financing experience relatively higher abnormal returns. The effect on financial and government-related firms is stronger in countries that display larger reductions in government bond yields. The effect on tradable firms is stronger in countries where the domestic currency appreciates more. We provide a stylized model that rationalizes these results. Our findings shed novel light on the channels through which sovereign debt inflows affect firms in emerging economies.

Notes:

Print version record

September 2020.