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What Is Different about International Lending?

Author

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  • Chowdhry, Bhagwan

Abstract

An attempt is made to explain how enforceability is achieved n international debt contracts. Each bank announces the policy of denying credit to borrowers who default and chooses to adhere to it to maintain its reputation of being a tough bank to discipline its other borrowers. Loans are made by syndicates of banks in order to make the penalty for default severe enough so borrowers would choose not to default voluntarily. The model predicts that the interest rate charged on loans is smaller for the larger borrowers. Also, for any given borrower, the interest rate may fall after each successive default. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Suggested Citation

  • Chowdhry, Bhagwan, 1991. "What Is Different about International Lending?," Review of Financial Studies, Society for Financial Studies, vol. 4(1), pages 121-148.
  • Handle: RePEc:oup:rfinst:v:4:y:1991:i:1:p:121-48
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    Citations

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    Cited by:

    1. Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2010. "International Government Debt," Business School Working Papers 2010-03, Universidad Torcuato Di Tella.
    2. Uppal, Raman & Van Hulle, Cynthia, 1997. "Sovereign debt and the London Club: A precommitment device for limiting punishment for default," Journal of Banking & Finance, Elsevier, vol. 21(5), pages 741-756, May.
    3. Chowdhry, Bhagwan, 2000. "Defaults and interest rates in international lending," Pacific-Basin Finance Journal, Elsevier, vol. 8(3-4), pages 333-345, July.
    4. Eduardo Borensztein & Ugo Panizza, 2009. "The Costs of Sovereign Default," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 683-741, November.
    5. repec:eee:worbus:v:53:y:2018:i:1:p:15-26 is not listed on IDEAS
    6. Becker, Torbjorn & Richards, Anthony & Thaicharoen, Yunyong, 2003. "Bond restructuring and moral hazard: are collective action clauses costly?," Journal of International Economics, Elsevier, vol. 61(1), pages 127-161, October.
    7. Kleimeier Stefanie & William L. Megginson, 2002. "An empirical analysis of limited recourse project finance," Research Memorandum 066, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    8. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 3-56, February.
    9. Jean-Daniel Guigou & Laurent Vilanova, 1999. "Les vertus du financement bancaire: fondements et limites," Revue Finance Contrôle Stratégie, revues.org, vol. 2(2), pages 97-133, June.
    10. Champagne, Claudia & Coggins, Frank, 2012. "Common information asymmetry factors in syndicated loan structures," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1437-1451.
    11. Baer, Werner & Hargis, Kent, 1997. "Forms of external capital and economic development in Latin America: 1820-1997," World Development, Elsevier, vol. 25(11), pages 1805-1820, November.
    12. de Haas, Ralph & van Horen, Neeltje, 2009. "The strategic behavior of banks during a financial crisis; evidence from the syndicated loan market," MPRA Paper 14164, University Library of Munich, Germany.
    13. Banerjee, Saugata & Cadot, Olivier, 1996. "Syndicated lending under asymmetric creditor information," Journal of Development Economics, Elsevier, vol. 49(2), pages 289-306, May.
    14. repec:sbe:breart:v:22:y:2002:i:2:a:2739 is not listed on IDEAS
    15. Christoph Trebesch, 2009. "The Cost of Aggressive Sovereign Debt Policies; How Much is theprivate Sector Affected?," IMF Working Papers 09/29, International Monetary Fund.

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