Sovereign Debt Default : The Impact of Creditor Composition
AbstractThe main motivation of this paper is to study the impact of the composition of creditors on the probability of default and the risk premium on sovereign bonds, when there is debtor moral hazard. In the absence of any legal enforcement, relational contracts work only when there are creditors who have a repeated relationship with the borrower. We show that ownership structures with a larger fraction of long term lenders are associated with a lower default probability and lower risk premia. Moreover, competitive markets structures lead to loss in efficiency as well when there is moral hazard, in contrast to the case with perfect enforceability and information.
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 901.
Date of creation: 2009
Date of revision:
Sovereign default ; Institutions ; Reputation ; Uncertainty;
Find related papers by JEL classification:
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
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