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Would Collective Action Clauses Raise Borrowing Costs? An Update and Additional Results

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  • Eichengreen, Barry
  • Mody, Ashoka

Abstract

This paper updates earlier findings concerning the impact of collective-action clauses on borrowing costs. It has been argued that only in recent quarters have investors focused on the presence of these provisions, and that, given the international financial institutions’ newfound resolve to "bail in" investors, they now regard these clauses with trepidation. Extending our data to 1999, we find no evidence of such changes but, rather, the same pattern as before: collective-action clauses raise costs of borrowing for low-rated issuers but reduce them for issuers with high credit ratings. We drop a special case -- Israel -- and show that this has no impact on the results. And we show that the same results hold for sovereign borrowers alone. We argue that these results should reassure those who regard collective action clauses as an important element in the campaign to strengthen the international financial architecture.

Suggested Citation

  • Eichengreen, Barry & Mody, Ashoka, 2000. "Would Collective Action Clauses Raise Borrowing Costs? An Update and Additional Results," Center for International and Development Economics Research, Working Paper Series qt46p4z4c4, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  • Handle: RePEc:cdl:ciders:qt46p4z4c4
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    1. Eichengreen, Barry & Mody, Ashoka, 1999. "Would Collective Action Clauses Raise Borrowing Costs?," CEPR Discussion Papers 2343, C.E.P.R. Discussion Papers.
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    Cited by:

    1. Barry Eichengreen & Ashoka Mody, 2003. "Is Aggregation a Problem for Sovereign Debt Restructuring?," American Economic Review, American Economic Association, vol. 93(2), pages 80-84, May.
    2. 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.
    3. Sandrine Levasseur & Christine Rifflart, 2003. "Crises de dette souveraine : vers une nouvelle résolution ?," Revue de l'OFCE, Presses de Sciences-Po, vol. 86(3), pages 83-131.
    4. Rohan Pitchford & Mark L. J. Wright, 2012. "Holdouts in Sovereign Debt Restructuring: A Theory of Negotiation in a Weak Contractual Environment," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 812-837.
    5. George Fane, 2001. "The New International Financial Architecture: Bail-ins, Bail-outs, Bail-ups and Newspeak," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 8(3), pages 223-233.
    6. Hal S. Scott, 2002. "How Would a New Bankruptcy Regime Help?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 334-340.
    7. Narjess Boubakri & Jean-Claude Cosset & Houcem Smaoui, 2011. "Political Institutions and Sovereign Credit Spreads," Working Papers 647, Economic Research Forum, revised 12 Jan 2011.
    8. Sönke Häseler, 2012. "Trustees versus fiscal agents and default risk in international sovereign bonds," European Journal of Law and Economics, Springer, vol. 34(3), pages 425-448, December.
    9. Heinz-Dieter Smeets & Angélique Herzberg, 2010. "Staatliche Insolvenz in einer Währungsunion," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 65(4), pages 379-399, December.
    10. Michael Bradley & James D. Cox & Mitu Gulati, 2010. "The Market Reaction to Legal Shocks and Their Antidotes: Lessons from the Sovereign Debt Market," The Journal of Legal Studies, University of Chicago Press, vol. 39(1), pages 289-324, January.
    11. Barry Eichengreen, 2003. "Restructuring Sovereign Debt," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 75-98, Fall.
    12. Andrew G Haldane & Adrian Penalver & Victoria Saporta & Hyun Song Shin, 2005. "Optimal collective action clause thresholds," Bank of England working papers 249, Bank of England.
    13. Michelle White, 2002. "Sovereigns in Distress: Do They Need Bankruptcy?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 287-320.
    14. Jérôme Sgard, 2000. "La gestion des crises de liquidité internationale : logique de faillite, prêteur en dernier ressort et conditionnalité," Working Papers 2000-16, CEPII research center.

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    Keywords

    international finance;

    JEL classification:

    • F3 - International Economics - - International Finance

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