Evaluating The Impact Of Rising Emerging Market Corporate Debt
Speaker(s) Dr. Madhu Kalimipalli, Professor of Finance, Equitable Life of Canada Fellow, Director, PhD and Research-based Master’s Programs in Management, Lazaridis School of Business and Economics, Wilfrid Laurier University, CANADA Publication Reserve Bank of India, CAFRAL, Mezzanine floor, Main Building, Shahid Bhagat singh road, Fort, Mumbai 400001

In this paper, we investigate how increased corporate leverage of emerging market firms in the post-financial crisis period (i.e. 2010-2015) impacted the underlying credit risk. We conduct a comprehensive study of how escalating emerging market corporate debt can impact distress risk for issuing firms. Using a firm-level credit risk, financial and balance sheet data of 350 firms from 23 emerging markets over an extended window 2002-15, we show that in the post-crisis period, higher leverage significantly increases the probability of default of the firms; and lowers the distance to default. The incremental leverage effects are most prominent in the Asian and Latin American region firms. Our results remain robust to several robustness tests including endogeneity and alternate regression methodologies. We also explore and document possible firm, industry and country based risk channels through which higher leverage impacted credit risk in emerging markets.

(Time permitting, I will also briefly review our work on systemic risks from a large-scale empirical examination of systemic risk among major financial institutions in emerging markets including India. We provide an analysis of the emerging market experience and insights into the use of network models in policy-making for measuring, managing and regulating systemic risk in the emerging market context.) 

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