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Would Collective Action Clauses Raise Borrowing Costs? An Update and Additional Results

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  • Eichengreen, Barry
  • Mody, Ashoka

Abstract

This paper updates earlier findings concerning the impact of collective-action clauses on borrowing costs. It has been argued that only in recent quarters have investors focused on the presence of these provisions, and that, given the international financial institutions’ newfound resolve to "bail in" investors, they now regard these clauses with trepidation. Extending our data to 1999, we find no evidence of such changes but, rather, the same pattern as before: collective-action clauses raise costs of borrowing for low-rated issuers but reduce them for issuers with high credit ratings. We drop a special case -- Israel -- and show that this has no impact on the results. And we show that the same results hold for sovereign borrowers alone. We argue that these results should reassure those who regard collective action clauses as an important element in the campaign to strengthen the international financial architecture.

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Bibliographic Info

Paper provided by Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley in its series Center for International and Development Economics Research, Working Paper Series with number qt46p4z4c4.

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Date of creation: 05 Jul 2000
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Handle: RePEc:cdl:ciders:qt46p4z4c4

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Keywords: international finance;

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  1. Eichengreen, Barry & Mody, Ashoka, 1999. "Would Collective Action Clauses Raise Borrowing Costs?," CEPR Discussion Papers 2343, C.E.P.R. Discussion Papers.
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Cited by:
  1. Häseler, Sönke, 2010. "Trustees versus fiscal agents and default risk in international sovereign bonds," MPRA Paper 35332, University Library of Munich, Germany.
  2. Rohan Pitchford & Mark L. J. Wright, 2010. "Holdouts in Sovereign Debt Restructuring: A Theory of Negotiation in a Weak Contractual Environment," NBER Working Papers 16632, National Bureau of Economic Research, Inc.
  3. Barry Eichengreen, 2003. "Restructuring Sovereign Debt," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 75-98, Fall.
  4. Andrew G Haldane & Adrian Penalver & Victoria Saporta & Hyun Song Shin, 2005. "Optimal collective action clause thresholds," Bank of England working papers 249, Bank of England.
  5. Barry Eichengreen & Ashoka Mody, 2003. "Is Aggregation a Problem for Sovereign Debt Restructuring?," American Economic Review, American Economic Association, vol. 93(2), pages 80-84, May.

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