We are excited to announce that Renze Folkeringa has won the first DACT Thesis Contest with his outstanding thesis titled “Sovereign to Corporate Credit Risk Spillover: Evidence from Default Probabilities.” His research provides valuable insights into the complex relationship between sovereign and corporate credit risks.
Summary
This paper explores the relationship between the creditworthiness of a country and the companies operating within it, specifically how changes in a government’s credit risk can affect domestic businesses. Using a sample of over 15,000 firms across 14 countries from 2013 to 2022, the study finds a clear “spillover” effect, where an increase in sovereign (government) credit risk leads to a higher chance of default for companies within that country.
The results show that a one standard deviation increase in sovereign default risk causes a 12.5% increase in the average firm’s default risk. The study uses a unique approach by measuring credit risk through default probabilities, which provides a more accurate picture of credit risk compared to traditional methods like bond yields or credit ratings.
The findings are important for policymakers, investors, and business managers. Understanding this link can help governments make better fiscal decisions, assist investors in evaluating firm risks, and guide companies in choosing locations for their operations based on both corporate and sovereign risk factors.
Second place
In second place, we congratulate Fay Kelder for her excellent submission, “Evaluating Healthcare Capital Market Liberalization: A Study on Determinants of Interest Surcharges on Dutch Healthcare Loans.”
We would like to thank all the teachers we contacted and the students who submitted their theses for their participation.
In the photo (from left to right): Bart Verweij, Nadiia Matskevych, Fay Kelder, Renze Folkeringa, Simone Trapp, Yannick Gehin and Erwin Bastianen.
