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Bond Restructuring and Moral Hazard; Are Collective Action Clauses Costly?

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Listed:
  • Torbjorn I. Becker
  • Anthony J. Richards
  • Yunyong Thaicharoen

Abstract

Many official groups have endorsed the wider use by emerging market borrowers of contract clauses which allow for a qualified majority of bondholders to restructure repayment terms in the event of financial distress. Some have argued that such clauses will be associated with moral hazard and increased borrowing costs. This paper addresses this question empirically using primary and secondary market yields and finds no evidence that the presence of collective action clauses increases yields for either higher- or lower-rated issuers. By implication, the perceived benefits from easier restructuring are at least as large as any costs from increased moral hazard.

Suggested Citation

  • Torbjorn I. Becker & Anthony J. Richards & Yunyong Thaicharoen, 2001. "Bond Restructuring and Moral Hazard; Are Collective Action Clauses Costly?," IMF Working Papers 01/92, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:01/92
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    References listed on IDEAS

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    1. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077 Elsevier.
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    More about this item

    Keywords

    International financial markets; Collective action clauses; Moral hazard; Emerging markets; Bond yields; Bond restructuring; contract design; law; bonds; bond; bondholders; International Lending and Debt Problems;

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