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The impact of sovereign credit ratings on corporate credit ratings in South Africa

Zuziwe Ntsalaze (Sasol Ltd, Johannesburg, South Africa)
Gideon Boako (Wits Business School, University of the Witwatersrand, Johannesburg-Braamfontein, South Africa)
Paul Alagidede (University of the Witwatersrand, Johannesburg-Braamfontein, South Africa)

African Journal of Economic and Management Studies

ISSN: 2040-0705

Article publication date: 12 June 2017




The purpose of this paper is to examine the impact of sovereign credit ratings on corporations in South Africa by assessing whether the sovereign rating assigned to South Africa by credit rating agencies acts as a ceiling/constraint for credit ratings assigned to corporations that operate within the country. The question of whether sovereign ratings are significant in determining corporate ratings was also explored.


To test the hypothesis regarding the rating of corporates relative to sovereigns, a longitudinal panel design was followed. The analysis employed fixed effects and generalized method of moments techniques.


The main findings are that sovereign ratings both act as a ceiling for corporate ratings and are important determinants of corporate ratings in South Africa. The findings however indicated that company specific variables (accounting variables) are not significant in explaining credit risk ratings assigned to corporates.

Research limitations/implications

This study only looked at the rating activity done by Standard and Poor’s (S&P). A possible further study could explore the hypothesis tested in this research using data from multiple rating agencies and contrast the results across different agencies. Future studies could also look at crisis periods and how the transfer risk discussed in this paper manifests during the transfer period.

Practical implications

The results have implications for the borrowing costs incurred by corporates in South Africa when participating in the international debt market. The implication is that if the sovereign is poorly rated, the corporates may be limited in their ability to secure investor funding at competitive rates from the international financial markets. Thus, should South Africa be downgraded to non-investment grade by S&P, the implications may be that South African corporates on average may suffer the same fate.


Extant literature predominantly utilizes foreign currency ratings. To the extent that this study uses local currency ratings, it adds a new dimension in the body of related studies.



The authors express appreciation to the Editor (Prof John Kuada) and two anonymous reviewers for their useful comments. The usual caveat applies.


Ntsalaze, Z., Boako, G. and Alagidede, P. (2017), "The impact of sovereign credit ratings on corporate credit ratings in South Africa", African Journal of Economic and Management Studies, Vol. 8 No. 2, pp. 126-146.



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Copyright © 2017, Emerald Publishing Limited

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