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Developing Country Debt and the Market Value of Large Commercial Banks

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  • Steven C. Kyle
  • Jeffrey Sachs
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    Abstract

    The effect on commercial banks of exposure to large amounts of developing country debt has been a topic of increasing concern in recent years. Fear of default on the part of the debtor countries has led to fears for the solvency of the creditor banks since in many cases the total of outstanding exposure to risky debtors exceeds the entire capital base of the banks involved. The paper presents a first effort towards measuring the effects of LDC debt exposure on the market value of large commercial value banks in the United States. Our results indicate that exposure to developing country debt has exerted a measurable and significant negative effect on the ratio of market to book value for these banks.

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    File URL: http://www.nber.org/papers/w1470.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1470.

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    Date of creation: Sep 1984
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    Handle: RePEc:nbr:nberwo:1470

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    1. Laurie Goodman & William F. Sharpe, 1978. "Perspective on Bank Capital Adequacy: Time-Series Analysis," NBER Working Papers 0247, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Marcel Fafchamps, . "Sovereign Debt, Structural Adjustment and Conditionality," Working Papers 96015, Stanford University, Department of Economics.
    2. Sule Ozler, 1986. "Valuation of Rescheduled Loans, 1978-1983: A Rational Expectations Approach," UCLA Economics Working Papers 414, UCLA Department of Economics.
    3. Jeremy I. Bulow & Kenneth Rogoff, 1987. "A Constant Recontracting Model of Sovereign Debt," NBER Working Papers 2088, National Bureau of Economic Research, Inc.
    4. Dollar, David, 1990. "Economic Reform and Allocative Efficiency in China's State-Owned Industry," Economic Development and Cultural Change, University of Chicago Press, vol. 39(1), pages 89-105, October.
    5. Jeffrey D. Sachs, 1987. "International Policy Coordination: The Case of the Developing Country Debt Crisis," NBER Working Papers 2287, National Bureau of Economic Research, Inc.
    6. Huizinga, Harry, 1989. "How has the debt crisis affected commercial banks?," Policy Research Working Paper Series 195, The World Bank.
    7. Sule Ozler, 1988. "Rescheduling and Bank Value: A Rational Expectations Approach," UCLA Economics Working Papers 488, UCLA Department of Economics.

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