Banks and sovereign risk: evidence from earnings announcements

• Ano de defesa: 2020
• Autor(a) principal: Braga, Otávio Luiz Mattarello
• Orientador(a): Guimarães, Bernardo de Vasconcellos
• Tipo de documento: Dissertação
• Tipo de acesso: Acesso aberto
• Idioma: eng
• Palavras-chave em Português: Default soberano; Bancos; Demonstrativos financeiros; Identificação via heteroscedasticidade
• Palavras-chave em Inglês: Sovereign default; Banks; Earnings announcements; Identification through heteroskedasticity
• Link de acesso: http://hdl.handle.net/10438/29235

A growing literature highlights the relation between bank crises and sovereign defaults. However, causal estimates of the effect of banks on sovereign risk, under plausible identifying assumptions, are badly missing from this literature. This paper attempts to fill this gap by exploring the exogenous shocks to bank equity provided by bank earnings announcements. Since the surprise in earnings announcements is not observable, we employ the method of identification through heteroskedasticity. Using data from Brazil, we find that a 10% fall in bank equity leads to an increase in default risk of around 1-3 percentage points. We do not see any significant effect when we replace the banking sector by the retail industry, state companies, or the stock market as a whole. Hence, banks seem to be indeed particularly relevant drivers of sovereign risk.