The Cost of Firms’ Debt Financing and the Global Financial Crisis

We provide an assessment of the determinants of the risk premium paid by non-financial corporations on long-term bonds. By looking at 5,500 issues in the period 2005-2012, we find that the turbulence in the sovereign debt market has been a major driver of corporate risk in recent years. Compared with 2005-07, the three years preceding the global financial crisis, in 2010-12 Italian, Spanish and Portuguese firms paid an additional premium of between 70 and 120 basis points on average due to the negative spillovers from the sovereign debt crisis, while German firms received a discount of 40 basis points