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Channels of Sovereign Risk Spillovers and Investment in the Manufacturing Sector

Deininger, Sebastian and Maringer, Dietmar. (2017) Channels of Sovereign Risk Spillovers and Investment in the Manufacturing Sector. WWZ Working Papers, 2017 (07).

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Abstract

This paper identifies endogenous and exogenous indicators of firms’ investment activity, and examine, in particular, the effect that these variables have in co-determining firms’ investment decisions. Two channels of spillovers from sovereign risk to firms’ capital expenditures are defined. The first channel, the “direct channel”, describes responses in capital expenditures from an innovation in sovereign risk. The second channel, the “indirect channel”, is a transmission mechanism in which spillovers from changes in sovereign risk indirectly affect a firm’s capital expenditures via its capital market risk and profitability. While we observe that the direct risk channel is of major importance in Emerging and Developing Economies, it is comparatively small in Advanced Economies. In the case of the latter, contagion from changes in sovereign risk on firms’ capital market risk plays a much more important role.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Computational Economics and Finance (Maringer)
12 Special Collections > WWZ Publications > WWZ Discussion Papers and Working Papers
UniBasel Contributors:Deininger, Sebastian and Maringer, Dietmar
Item Type:Working Paper
Publisher:WWZ, University of Basel
Number of Pages:31
Note:Publication type according to Uni Basel Research Database: Discussion paper / Internet publication
Language:English
Identification Number:
  • handle: RePEc:bsl:wpaper:2017/07
Last Modified:11 Apr 2018 07:05
Deposited On:07 Mar 2018 12:59

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