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LDC Borrowing with Default Risk

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  • Jeffrey Sachs
  • Daniel Cohen

Abstract

This paper presents a theoretical model to describe the effects of default risk on international lending to LDC sovereign borrowers. The threat of defaults in international lending is shown to give rise to many characteristics of the syndicated loan market: (1) quantity rationing of loans; (2) LDC policies designed to enhance creditworthiness; (3) prevalence of short maturities on international loans; and (4) a prevalence of bank lending relative to bond-market lending

Suggested Citation

  • Jeffrey Sachs & Daniel Cohen, 1982. "LDC Borrowing with Default Risk," NBER Working Papers 0925, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0925
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    1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    2. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
    3. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    4. Jeffrey D. Sachs, 1982. "Aspects of the Current Account Behavior of OECD Economies," NBER Working Papers 0859, National Bureau of Economic Research, Inc.
    5. Jeffrey D. Sachs, 1981. "The Current Account in the Eacroeconomic Adjustment Process," NBER Working Papers 0796, National Bureau of Economic Research, Inc.
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