Behavioral implications of sovereign ceiling doctrine for the access to credit by firms

This paper empirically tests the implications of sovereign credit rating ceiling on the self-credit rationing behavior of the firms. It explores the impact of both the level and instability of sovereign ratings on the access to credit by firms, across a large global sample; however, our measure of access to finance captures the extent of self-credit rationing ability of firms, differently. Our results suggest a significant and negative association indicating that sovereign rating instability and frequent changes in outlook reduce the access to credit by firms. Our findings are especially strong for developing economies and are robust across alternative estimation techniques. We also find that sovereign rating and outlook instability is critical during normal times, whereas the rating level is important during crisis period.