Exodus from Sovereign Risk: Global Asset and Information Networks in the Pricing of Corporate Credit Risk

Using five-year credit default swap (CDS) spreads on 2,364 companies in 54 countries from 2004 to 2011, we find that firms exposed to stronger property rights through their foreign asset positions (institutional channel) and firms cross-listed on exchanges with stricter disclosure requirements (informational channel) reduce their CDS spreads by 40 bps for a one-standard-deviation increase in their exposure to the two channels. These channels capture effects beyond those associated with firm- and country-level fundamentals. Overall, we find that firm-level global asset and information connections are important mechanisms to delink firms from their sovereign and country risks.