Although credit rating agencies have gradually moved away from a policy of never rating a corporation above the sovereign (the `sovereign ceiling`), it appears that sovereign credit ratings remain a significant determinant of corporate credit ratings. We examine this link using data for advanced and emerging economies over the period of 1995-2009. Our main result is that a sovereign ceiling continues to affect the rating of corporations. This effect is robust to a broad range of alternative specifications.

JEL CODE: G1; G2; G3.

Eduardo Borensztein

Kevin Cowan

Patricio Valenzuela

Keywords: Credit Risk; Sovereign Risk; Credit Ratings; Sovereign Ceiling.