Front Matter Page
Monetary and Financial Systems Department
Authorized for distribution by Peter Stella
Contents
I. Introduction
A. Why South Africa?
B. Sovereign Risk and the Country or Sovereign Ceiling Rule
II. Review of Related Literature
III. Theoretical Framework: Determinants of the Corporate Default Premium
A. Starting Point: The Merton (1974) Model
B. Adding Stochastic Interest Rates: The Shimko, Tejima, and Van Deventer (1993) Model
C. Adding Sovereign Risk
D. Other Potential Determinants
E. Synthesis
IV. Operationalization of Variables and Data
A. Dependent Variable: How Is the Corporate Default Premium Measured?
B. Explanatory Variables
C. Sample and Data
V. Empirical Methodology and Results
A. The Econometric Model: Fixed Effects with Different Slopes for Sovereign Risk
B. Choosing the Appropriate Estimator and First Results
C. A Robustness Check: Corporate Spreads in First Differences
D. Discussion of Results
VI. Summary and Conclusions
References
Tables
1. South African Corporate Bonds: Issuers, Main Features, and Corresponding Benchmark Instruments
2. History of Credit Ratings by the Republic of South Africa and Firms Analyzed
3. The Determinants of Corporate Default Premia: Expected Impact
4. Data Sources and Measurement of Variables
5. Descriptive Statistics of Variables
6. The Determinants of Corporate Default Premia: Regressions Results
7. The Determinants of Corporate Default Premia: Summary of Empirical Results
8. Variance Decompositions of Corporate Default Premia in Levels and First Differences
Figures
1. Firm Bond Yields and Corresponding Sovereign and Risk-Free Yields
2. South African Corporate Default Premia, July 2000–May 2003
3. South African Sovereign Default Premia, Corresponding to the Corporate Default Premia, July 2000–May 2003
Boxes
1. The Cost of Debt for an Emerging Market Borrower
Appendices
I. Mathematical Appendix
II. Econometric Tests
III. Tables and Figures