Corporate sensitivity to sovereign credit distress: the mitigating effects of financial flexibility

Vu, Huong, Klusak, Patrycja, Khoo, Shee Yee and Alsakka, Rasha (2024) Corporate sensitivity to sovereign credit distress: the mitigating effects of financial flexibility. European Journal of Finance, 30 (15). pp. 1728-1756. ISSN 1351-847X

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Abstract

This paper investigates the role of financial flexibility in sovereign-corporate rating nexus. Using a panel data of non-financial European firms rated by S&P during 2005–2022, we show that financially flexible firms are more protected from the consequences of sovereign rating downgrades than their financially inflexible counterparts. Financial flexibility becomes particularly valuable for corporates in GIIPS countries, during the European sovereign debt crisis and the COVID-19 pandemic. Finally, private firms benefit more from financial flexibility than public firms due to their financing constraints. Our findings have implications for corporate managers, governments, and regulators alike, as financial flexibility can act as a shield against sovereign risks’ shocks.

Item Type:	Article
Additional Information:	Publisher Copyright: © 2024 Informa UK Limited, trading as Taylor & Francis Group.
Uncontrolled Keywords:	corporate ratings,financial flexibility,sovereign ratings,spillover effect,economics, econometrics and finance (miscellaneous) ,/dk/atira/pure/subjectarea/asjc/2000/2001
Faculty \ School:	Faculty of Social Sciences > Norwich Business School
Related URLs:	https://www.scopus.com/pages/publication...
Depositing User:	LivePure Connector
Date Deposited:	04 Jun 2026 14:06
Last Modified:	06 Jun 2026 13:32
URI:	https://ueaeprints.uea.ac.uk/id/eprint/103278
DOI:	10.1080/1351847X.2024.2332718

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