Debt-equity swaps and the enforcement of sovereign loan contracts
This paper analyses the incentive compatibility effects associated with restructuring sovereign debt through a debt-equity swap scheme and the analytically related issue of providing new project finance in developing countries through equity convertible bond issues. Our central result is that these initiatives can generate efficient investment incentives and also provide a partial contractual enforcement mechanism by reconciling the investment interests of debtors and their external creditors. Unlike previous analysis of the benefits of swaps, our results make no appeal to risk considerations nor invoke informational asymmetries. We also derive a necessary condition for swaps to overcome the free-rider barrier to the provision of voluntary, market-based debt relief. In contrast to Brady Plan restructurings, this condition does not rely on taxation of the capital gains accruing to non-participating creditors. The results should be viewed in the context of the structural transformation which has recently occurred in the source of capital flows to developing countries, from syndicated bank lending to the international bond markets. The analysis advocates an enhanced role for equity convertible bond issues in this resurgence of international capital market activity. © 1997 John Wiley & Sons, Ltd.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Volume (Year): 9 (1997)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www3.interscience.wiley.com/journal/5102/home|
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.:
- Elhanan Helpman, 1989.
"Voluntary Debt Reduction: Incentives and Welfare,"
IMF Staff Papers,
Palgrave Macmillan, vol. 36(3), pages 580-611, September.
- Blake, David & Pradhan, Mahmood, 1991. "Debt-equity swaps as bond conversions: implications for pricing," Journal of Banking & Finance, Elsevier, vol. 15(1), pages 29-41, February.
- Eaton, Jonathan, 1990. "Debt Relief and the International Enforcement of Loan Contracts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 43-56, Winter.
- Leonardo Bartolini & Avinash K Dixit, 1990.
"Market Valuation of Illiquid Debt and Implications for Conflicts Among Creditors,"
IMF Working Papers
90/88, International Monetary Fund.
- Leonardo Bartolini & Avinash Dixit, 1991. "Market Valuation of Illiquid Debt and Implications for Conflicts among Creditors," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 828-849, December.
- Bulow, Jeremy & Rogoff, Kenneth, 1989.
"A Constant Recontracting Model of Sovereign Debt,"
Journal of Political Economy,
University of Chicago Press, vol. 97(1), pages 155-178, February.
- Jeremy A.Rogoff Bulow & Kenneth, 1986. "A Constant Recontracting Model of Sovereign Debt," University of Chicago - George G. Stigler Center for Study of Economy and State 43, Chicago - Center for Study of Economy and State.
- Jeremy I. Bulow & Kenneth Rogoff, 1986. "A Constant Recontracting Model of Sovereign Debt," NBER Working Papers 2088, National Bureau of Economic Research, Inc.
- Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
- Michael P. Dooley, 1988. "Buy-Backs and Market Valuation of External Debt," IMF Staff Papers, Palgrave Macmillan, vol. 35(2), pages 215-229, June.
- Robert C. Merton, 1973.
"Theory of Rational Option Pricing,"
Bell Journal of Economics,
The RAND Corporation, vol. 4(1), pages 141-183, Spring.
- William R. Cline, 1995. "International Debt Reexamined," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 46, January.
- Bowe, Michael & Dean, James W, 1993. "Debt-Equity Swaps: Investment Incentive Effects and Secondary Market Prices," Oxford Economic Papers, Oxford University Press, vol. 45(1), pages 130-147, January.
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
When requesting a correction, please mention this item's handle: RePEc:wly:jintdv:v:9:y:1997:i:1:p:59-83. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.