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Bonds and Brands : intermediaries and reputation in sovereign debt markets 1820-1830

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  • Flandreau, Marc
  • Flores, Juan-Huitzi

Abstract

How does sovereign debt emerge and become sustainable? This paper provides a new answer to this unsolved puzzle. Focusing on the early 19th century, we argue that intermediaries’ market power served to overcome information asymmetries and sustained the development of sovereign debt. Relying on insights from corporate finance, we argue that capitalists turned to intermediaries’ reputations to guide their investment strategies. The outcome was a two-tier global bond market, which was sustained by hierarchical relations among intermediaries. This novel theoretical perspective is backed by new archival evidence and empirical data that have never been gathered so far.

Suggested Citation

  • Flandreau, Marc & Flores, Juan-Huitzi, 2007. "Bonds and Brands : intermediaries and reputation in sovereign debt markets 1820-1830," IFCS - Working Papers in Economic History.WH wp07-12, Universidad Carlos III de Madrid. Instituto Figuerola.
    • Handle: RePEc:cte:whrepe:wp07-12
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    References listed on IDEAS

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    1. Giorgio Fodor, 2002. "The boom that never was? Latin American loans in London 1822-1825," Department of Economics Working Papers 0205, Department of Economics, University of Trento, Italia.
    2. Hidy, Ralph W., 1941. "The Organization and Functions of Anglo-American Merchant Bankers, 1815–1860," The Journal of Economic History, Cambridge University Press, vol. 1(S1), pages 53-66, December.
    3. Flores, Juan-Huitzi, 2007. "Lending booms, underwriting and competition : the baring crisis revisited," IFCS - Working Papers in Economic History.WH wp07-01, Universidad Carlos III de Madrid. Instituto Figuerola.
    4. Archer, Candace C. & Biglaiser, Glen & DeRouen, Karl, 2007. "Sovereign Bonds and the “Democratic Advantage†: Does Regime Type Affect Credit Rating Agency Ratings in the Developing World?," International Organization, Cambridge University Press, vol. 61(2), pages 341-365, April.
    5. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212.
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    1. Marc Flandreau, 2013. "Sovereign states, bondholders committees, and the London Stock Exchange in the nineteenth century (1827–68): new facts and old fictions," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 29(4), pages 668-696, WINTER.
    2. Flandreau, Marc & Flores, Juan, 2010. "Hamlet without the Prince of Denmark: Relationship banking and conditionality lending in the London market for government debt," CEPR Discussion Papers 7915, C.E.P.R. Discussion Papers.
    3. Marc Flandreau, Juan Flores, 2010. "Hamlet Without The Prince of Denmark: Relationship Banking and Conditionality Lending In The London Market For Foreign Government Debt, 1815 - 1913," IHEID Working Papers 08-2010, Economics Section, The Graduate Institute of International Studies.
    4. Bradley, Michael & De Lira Salvatierra, Irving & Gulati, Mitu, 2014. "Lawyers: Gatekeepers of the sovereign debt market?," International Review of Law and Economics, Elsevier, vol. 38(S), pages 150-168.
    5. Marc Flandreau & Juan Flores, 2011. "Bondholders vs. bond-sellers? Investment banks and conditionality lending in the London market for foreign government debt, 1815-1913," Working Papers 0002, European Historical Economics Society (EHES).
    6. Carlos Marichal, 2014. "Historical reflections on the causes of financial crises: Official investigations, past and present, 1873–2011," Investigaciones de Historia Económica - Economic History Research (IHE-EHR), Journal of the Spanish Economic History Association, Asociación Española de Historia Económica, vol. 10(02), pages 81-91.

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    More about this item

    Keywords

    Financial history;

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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