This study explores the determinants of corporate bond spreads
in emerging markets economies. Using a largely unexploited dataset,
the paper finds that corporate bond spreads are determined by
firm-specific variables, bond characteristics, macroeconomic conditions, sovereign
risk, and global factors. A variance decomposition analysis shows that
firm-level characteristics account for the larger share of the
variance. In addition, the paper finds two asymmetries. The first is in line
with the sovereign ceiling "lite" hypothesis which states that the
transfer of risk from the sovereign to the private sector is less than 1 to
1. The second is consistent with the popular notion that panics are
common in emerging markets where investors are less informed and more
prone to herding.

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