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Bond Restructuring and Moral Hazard: Are Collective Action Clauses Costly?

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Author Info
Yunyong Thaicharoen
Törbjörn I. Becker
Anthony J. Richards

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Abstract

Many official groups have endorsed the wider use by emerging market borrowers of contract clauses which allow for a qualified majority of bondholders to restructure repayment terms in the event of financial distress. Some have argued that such clauses will be associated with moral hazard and increased borrowing costs. This paper addresses this question empirically using primary and secondary market yields and finds no evidence that the presence of collective action clauses increases yields for either higher- or lower-rated issuers. By implication, the perceived benefits from easier restructuring are at least as large as any costs from increased moral hazard.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/92.

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Length: 41 pages
Date of creation: 13 Aug 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/92

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Related research
Keywords: Collective action clauses ; Bonds ; Emerging markets ; Bond issues ; Economic models ;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Michael P. Dooley, 2000. "Can Output Losses Following International Financial Crises be Avoided?," NBER Working Papers 7531, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Angrist, Joshua D. & Krueger, Alan B., 1999. "Empirical strategies in labor economics," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 23, pages 1277-1366 Elsevier. [Downloadable!] (restricted)
    Other versions:
  4. Chowdhry, Bhagwan, 1991. "What Is Different about International Lending?," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 4(1), pages 121-48. [Downloadable!] (restricted)
  5. Richard Cantor & Frank Packer, 1996. "Determinants and impacts of sovereign credit ratings," Research Paper 9608, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ashoka Mody, 2004. "What is an Emerging Market?," IMF Working Papers 04/177, International Monetary Fund. [Downloadable!]
  2. Chriatian Just, 2004. "The International Financial Architecture: Official Proposals on Crisis Resolution and the Role of the Private Sector," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 73-89, May. [Downloadable!]
  3. Barry Eichengreen & Kenneth Kletzer & Ashoka Mody, 2003. "Crisis resolution: next steps," Pacific Basin Working Paper Series 03-05, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  4. Rohan Pitchford & Mark L. J. Wright, 2008. "Holdouts In Sovereign Debt Restructuring: A Theory Of Negotiation In A Weak Contractual Environment," CAMA Working Papers 2008-37, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
  5. Patrick Bolton, 2003. "Toward a Statutory Approach to Sovereign Debt Restructuring: Lessons from Corporate Bankruptcy Practice around the World," IMF Working Papers 03/13, International Monetary Fund. [Downloadable!]
  6. Kenneth Kletzer, 2004. "Resolving sovereign debt crises with collective action clauses," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Feb. 20. [Downloadable!]
  7. Philipp Maier, 2007. "Do We Need the IMF to Resolve a Crisis? Lessons from Past Episodes of Debt Restructuring," Working Papers 07-10, Bank of Canada. [Downloadable!]
  8. Mark Gugiatti & Anthony Richards, 2003. "Do Collective Action Clauses Influence Bond Yields? New Evidence from Emerging Markets," RBA Research Discussion Papers rdp2003-02, Reserve Bank of Australia. [Downloadable!]
    Other versions:
  9. José Wynne & Federico Weinschelbaum, 2004. "Renegotiation, Collective Action Clauses and Sovereign Debt Markets," Econometric Society 2004 Latin American Meetings 153, Econometric Society. [Downloadable!]
    Other versions:
  10. Federico Sturzenegger, 2002. "Defaults in the 90´s: Factbook and Preliminary Lessons," Business School Working Papers veintidos, Universidad Torcuato Di Tella. [Downloadable!]
  11. Kenneth Kletzer, 2003. "Sovereign Bond Restructuring: Collective Action Clauses and Official Crisis Intervention," IMF Working Papers 03/134, International Monetary Fund. [Downloadable!]
  12. Esteban Jadresic & Klaus Schmidt-Hebbel & Rodrigo Valdés, 2003. "Crisis Financieras Internacionales, Prestamista de Última Instancia y Nueva Arquitectura Financiera Internacional," Working Papers Central Bank of Chile 212, Central Bank of Chile. [Downloadable!]
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