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Bond Restructuring and Moral Hazard

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Author Info

  • Törbjörn I. Becker
  • Anthony J. Richards
  • Yunyong Thaicharoen

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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Bibliographic Info

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

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

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Related research

Keywords: Collective action clauses; Moral hazard; Emerging markets; law; bonds; bond; bondholders; international bonds; bond yields; sovereign bonds; bond contracts; bond issue; eurobonds; bond ratings; emerging market bonds; corporate bonds; financial markets; yankee bonds; bond contract; global bonds; brady bonds; market bond; bond restructuring; international bond; bond issues; yields on bonds; sovereign bond; bearer bond; emerging market bond; bond market; financial market; financial institutions; rate bonds; outstanding bonds; foreign bonds; valuation of bonds; international financial markets; bond issuance; international bond issues; bond markets; cash flows; individual bond; international capital; convertible bonds; samurai bonds; international banks; international financial architecture; bond financing; foreign ? bonds; dollar bonds; financial law; international capital markets; eurobond; supply of bonds; financial stability; individual bondholders; international law; financial system; dual currency bonds; bond market access; international bond markets; fixed rate bonds; international finance; bond flows;

References

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.:
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  1. 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.
  2. Barry Eichengreen & Ashoka Mody, 2000. "Would Collective Action Clauses Raise Borrowing Costs?," NBER Working Papers 7458, National Bureau of Economic Research, Inc.
  3. Michael P. Dooley, 2000. "Can Output Losses Following International Financial Crises be Avoided?," NBER Working Papers 7531, National Bureau of Economic Research, Inc.
  4. Chowdhry, Bhagwan, 1991. "What Is Different about International Lending?," Review of Financial Studies, Society for Financial Studies, vol. 4(1), pages 121-48.
  5. 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.
  6. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 37-53.
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Citations

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Cited by:
  1. Häseler, Sönke, 2010. "Trustees versus Fiscal Agents and Default Risk in International Sovereign Bonds," MPRA Paper 21918, University Library of Munich, Germany.
  2. repec:spo:wpecon:info:hdl:2441/2443 is not listed on IDEAS
  3. Federico Sturzenegger, 2002. "Defaults in the 90´s: Factbook and Preliminary Lessons," Business School Working Papers veintidos, Universidad Torcuato Di Tella.
  4. Eichengreen, Barry & Kletzer, Kenneth & Mody, Ashoka, 2003. "Crisis Resolution: Next Steps," Santa Cruz Department of Economics, Working Paper Series qt4cj974r4, Department of Economics, UC Santa Cruz.
  5. Helmut Stix, 2004. "The Impact of ATM Transactions and Cashless Payments on Cash Demand in Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 90–105.
  6. Barry Eichengreen, 2003. "Restructuring Sovereign Debt," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 75-98, Fall.
  7. Marc Flandreau & Juan H. Flores & Norbert Gaillard & Sebastián Nieto-Parra, 2010. "The End of Gatekeeping: Underwriters and the Quality of Sovereign Bond Markets, 1815-2007," NBER Chapters, in: NBER International Seminar on Macroeconomics 2009, pages 53-92 National Bureau of Economic Research, Inc.
  8. Esteban Jadresic M. & Sergio Lehmann B., 2003. "Evaluación de Propuestas Recientes en Torno a la Arquitectura Financiera Internacional," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 6(3), pages 81-88, December.
  9. Lanau, Sergi, 2011. "The contractual approach to sovereign debt restructuring," Bank of England working papers 409, Bank of England.
  10. Kenneth Kletzer, 2004. "Resolving sovereign debt crises with collective action clauses," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue feb.20.
  11. Sandrine Levasseur & Christine Rifflart, 2003. "Crises de dette souveraine : Vers une nouvelle résolution ?," Sciences Po publications info:hdl:2441/2443, Sciences Po.
  12. 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.
  13. Patrick Bolton, 2003. "Toward a Statutory Approach to Sovereign Debt Restructuring," IMF Working Papers 03/13, International Monetary Fund.
  14. Kenneth Kletzer, 2003. "Sovereign Bond Restructuring," IMF Working Papers 03/134, International Monetary Fund.
  15. Kenneth Kletzer & Barry J. Eichengreen & Ashoka Mody, 2003. "Crisis Resolution," IMF Working Papers 03/196, International Monetary Fund.

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