Studying Interdependence Between Sovereign Credit Quality and Rating Profile of National Companies in International Scale

The present study is designed to explain the process of transmission of changes in sovereign credit risk to national companies ratings. We explore this question using a sample of data from three global rating agencies such as S&P, Moody’s and Fitch from 2006 to 2016. Using clustering approach to evaluate distribution and transition matrices, we investigate different hypotheses for the existence of “sovereign ceiling” and “sovereign effect” phenomena, their intensity and direction of impact. Furthermore, an analysis was made on the reverse effect of the impact of corporate ratings on the sovereign rating. Econometric modeling shows the crucial role played by macroeconomic indicators in explaining changes in corporate ratings, as well as the influence of sovereign rating. Our study contributes to the whole topic of investigation of credit ratings and develops existing methods of analysis of the “sovereign ceiling” and “sovereign effect” phenomena. Moreover, it fills a gap in the lack of research for the Russian market in particular. Questions surrounding the inverse “sovereign effect” phenomenon offer opportunities for future research. The results of this study demonstrate the reality of a strong “sovereign ceiling” in the case of Russian corporate rates. However, the fact of the existence of the “sovereign effect” remains ambiguous in comparison to different sectors and rating agencies. The outcomes obtained from this study are of high practical importance and can be used to solve real cases in the fields of banking and research.