Understanding Corporate Vulnerabilities in Latin America

35 Pages Posted: 27 Sep 2016

See all articles by Carlos Caceres

Carlos Caceres

International Monetary Fund (IMF)

Fabiano Rodrigues Bastos

International Monetary Fund (IMF)

Date Written: April 2016

Abstract

This paper analyzes the potential risks and vulnerabilities of non-financial corporates in Latin America and Canada. We quantify the impact of company-specific, countryspecific, and global factors in driving corporate spreads. Overall, we found that all these factors play a role in explaining corporate risk. In particular, country specific factors such as exchange rate and sovereign CDS spreads are significantly associated with changes in corporate spreads, underscoring the importance of solid policy frameworks. We also find that global conditions, such as the VIX, are dominant drivers of corporate spreads. In recent years, the adverse effects from deteriorating domestic conditions have been broadly offset by relatively bening global financial conditions. However, a sustained reversal in these conditions would put significant pressure on corporate risk.

Keywords: Corporate risk; market-based measures; fundamentals.

JEL Classification: C10, D22, G10, G30, L20

Suggested Citation

Caceres, Carlos and Rodrigues Bastos, Fabiano, Understanding Corporate Vulnerabilities in Latin America (April 2016). IMF Working Paper No. 16/80, Available at SSRN: https://ssrn.com/abstract=2844158

Carlos Caceres (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Fabiano Rodrigues Bastos

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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