The Nexus between Sovereign Debt and Corporate Issuances in Emerging Markets

This dissertation examines how inaugural sovereign debt issuances influence inaugural corporate issuances in low and middle-income countries, utilizing a cross-country database from SDC Platinum (1990–2022). It also explores whether elevated levels of sovereign debt issuance create a crowding-out effect on corporates. The findings reveal that inaugural sovereign debt issuances have a significant positive impact, increasing the probability of corporate debt issuance by an average of 354%. However, this effect is constrained, as excessive sovereign issuances—exceeding 6% of annual GDP on average—tend to absorb liquidity in more mature markets Regarding equity issuances, while the increase in the probability of inaugural equity issuance can reach up to 260% on average, the results are inconsistent across the estimated models. Furthermore, no crowding-out effect is identified for equity instruments. This suggests that as capital markets gain experience, equity issuances may benefit from diversification opportunities rather than being displaced by sovereign debt issuance.