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Quis custodiet quem? Sovereign Debt and Bondholders` Protection Before 1914

  • Rui Pedro Esteves

The half-century before World War I has been characterized as the first age of financial globalization. This paper focuses on the role and significance of the bondholders` organizations for the governance of this market. I argue that the outcome of these institutions depended on two dimensions: the institutional variation that characterized these organizations and their strategic interaction. These aspects are addressed using a model of sovereign debt with constant renegotiation. An original data set with information on the settlement of defaulted debts in the period 1870-1913 is used to test the implications of the model. Empirical results support the premise that the quality of bondholders` representation matters for the terms of settlement and the costs of renegotiation. Renegotiation-friendly but not debtor-friendly organizations yielded the best ex post results for their members. The representation of bondholders` interests by the issue banks on the other hand, produced inferior outcomes.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 323.

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Date of creation: 01 Apr 2007
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Handle: RePEc:oxf:wpaper:323
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