Boumparis, P. (2026). Sovereign Ceilings and Corporate Payouts: How Rating Constraints Shape Dividend Policy. Journal of International Financial Markets, Institutions and Money (forthcoming)

Abstract

This study investigates how credit rating downgrades affect dividend policies. We exploit the sovereign ceiling rule, which prevents corporate credit ratings from exceeding their country's sovereign rating, to identify exogenous variation in corporate credit ratings. Following a sovereign downgrade, we find that 'bound' firms, those with credit ratings equal to or higher than the respective sovereign rating, who face substantially higher downgrade probabilities due to the ceiling rule, reduce dividend distributions relative to other domestic firms. The effect is more pronounced in countries with weaker creditor and shareholder rights and among firms that relied on external financing for payouts prior to the downgrade. Additional analysis confirms the parallel trends assumption, as bound firms show no differential dividend policy before the sovereign downgrade year. Our results remain robust across a series of tests, including alternative measures of dividend policy, propensity score matching, falsification tests addressing macroeconomic shocks unrelated to sovereign downgrades, and controls for differences in credit quality. Furthermore, we document that markets react less negatively when bound firms cut dividends following sovereign downgrades, suggesting that investors interpret these payout reductions in the context of the exogenous credit shock rather than as negative signals about firm fundamentals. This study enhances our understanding of corporate payout policy by highlighting how sovereign credit constraints influence firms' payout decisions through the sovereign ceiling channel. 

Temiz, H., Boumparis, P., Florackis, C. (2026). ESG Disclosure, Foreign Ownership, and the Role of the Information and Governance Environments. Corporate Governance: An Internation Review. https://doi.org/10.1111/corg.70032 

Abstract

Analyzing a large sample of firms from 42 countries, this study examines the impact of environmental, social, and governance (ESG) disclosure on the level of firms' foreign ownership, as well as how this relationship varies across national information and governance environments. We find that the relationship between ESG disclosure and foreign ownership is contingent upon country-level information and governance environments, with ESG disclosure having a stronger positive effect in countries where these institutional characteristics are weaker. Further analysis shows that this effect is primarily driven by the environmental and social dimensions of ESG, indicating their greater relevance to foreign investors. The findings are robust across various sensitivity tests, including methods addressing potential endogeneity, analyses incorporating a measure of ESG disclosure quality that accounts for decoupling—the gap between a firm's stated ESG commitments and its actual practices—and analyses restricting the sample to investors from countries with strong environmental performance. 

Boumparis, P., Florackis, C., Guedhami, O., Sainani, S. (2025). Backing away from ESG? The effect of sovereign rating downgrades on corporate sustainability. Journal of Corporate Finance, 102856. Doi: https://doi.org/10.1016/j.jcorpfin.2025.102856 

Abstract

We examine how sovereign rating downgrades affect firms' environmental, social, and governance (ESG) policies, leveraging the sovereign “ceiling” rule as a quasi-natural experiment that generates exogenous variation in corporate credit ratings. Under this rule, firms originally rated at or above the sovereign rating (bound firms) face a higher likelihood of downgrade following a sovereign downgrade. Using a difference-in-differences (DiD) setting, we find that bound firms experience a decline in ESG performance following a sovereign downgrade. This decline occurs only after the downgrade, not before, validating the parallel trends assumption. Our analysis further indicates that this effect is not driven by financing frictions and is concentrated in countries with a shareholder-centric orientation, and among firms with low institutional ownership from countries with strong social norms. Additional evidence suggests that affected firms experience an increase in ESG-related incidents, damaging their reputation post-downgrade. Overall, our findings underscore the crucial role of sovereign risk in shaping corporate sustainability practices. 

Boumparis, P., Milas, C., Panagiotidis, T. (2019). Non-performing loans and sovereign credit ratings. International Review of Financial Analysis .  Doi: https://doi.org/10.1016/j.irfa.2019.06.002

Abstract

This paper examines the joint behaviour of sovereign ratings and their macroeconomic/financial determinants (namely uncertainty, GDP growth, government debt-to-GDP ratio, investment-to-GDP ratio and the fiscal balance-to-GDP ratio) in a multivariate Panel Vector Autoregressive (PVAR) framework. We reveal another channel of interconnection between sovereign and banking credit risk by identifying a two-way relationship between non-performing loans (NPLs) and sovereign ratings. Generalized impulse response functions (GIRFs) provide evidence of significant effects from NPLs on sovereign rating decisions over and above the effects of the remaining economic/financial variables. At the same time, sovereign rating decisions impact on NPLs and all other variables. 

Boumparis, P., Milas, C., Panagiotidis, T. (2017). Economic policy uncertaintyand sovereign credit rating decisions: Panel quantile evidence for the eurozone. Journal of International Money and Finance  Doi: https://doi.org/10.1016/j.jimonfin.2017.08.00

Abstract

We employ a panel quantile framework that quantifies the relative importance of quantitative and qualitative factors across the conditional distribution of sovereign credit ratings in the Eurozone area. We find that regulatory quality and competitiveness have a stronger impact for low rated countries whereas GDP per capita is a major driver of high rated countries. A reduction in the current account deficit leads to a rating or outlook upgrade for low rated countries. Economic policy uncertainty impacts negatively on credit ratings across the conditional distribution; however, the impact is stronger for the lower rated countries. In other words, the creditworthiness of low rated countries takes a much bigger ‘hit’ than that of high rated countries when European policy uncertainty is on the rise.

Boumparis, P., Milas, C., Panagiotidis, T. (2015). Has the crisis a‚ected the behavior of rating agencies? Panel evidence from the eurozone. Economics Letters  Doi: https://doi.org/10.1016/j.jimonfin.2017.08.007

Abstract

We examine the determinants of credit ratings for the Eurozone countries over the period 2002–2013 within a panel framework that allows for cross-sectional dependence. We find that government debt and the cumulative current account exert a stronger impact on ratings post-2008 compared to the period before. 

Boumparis, P., Milas, C., Panagiotidis, T. (2017).On the Role of the Credit Rating Agencies in the Euro Zone Crisis. Political Economy Perspectives on the Greek Crisis. Palgrave Macmillan, Cham. (Book chapter)