Abstract
Globalisation has allowed companies to reach ever further into new territories for business opportunities. Corporations can spend large sums of money to try and assess what effect new projects in unknown territories can have on their internal risk profile. Corporations require a quick yet accurate assessment of the risk associated with new territories, especially in Africa, where there is a history of high-risk profiles. Sovereign credit ratings provide an assessment of a country’s risk. This minor dissertation attempts to evaluate whether there is a relationship between a company’s internal risk profile and that of the country in which it operates. Such a relationship can assist corporations in assessing the effects external risks might have on their internal risk profiles. Credit default risk is used as a proxy for internal corporate risk and is evaluated against sovereign credit ratings to assess any possible relationship. The data sample is for eleven African countries spread over the continent, with a timeline from April 2011 to December 2018. A panel regression analysis using a step-wise approach is used to analyse the data. The results show that there is a relationship between credit default swaps and sovereign credit ratings. Therefore corporations, investors and governments can use this relationship for their own planning purposes.
M.Com. (Finance)