Can Network Effects Impede Optimal Contracting in Debt Securities?
We examine network effects as an impediment to optimal financial contracting. In devising the terms of their transaction, the parties may prefer to conform to a market standard rather than matching their own contracting needs. To study this possibility, we investigate choice of contract law provisions in European debt securities. In order to disentangle network effects from the effects of substantive differences of contract laws, we take advantage of a natural experiment: In 1999, eleven countries adopted the Euro as an official currency. As a consequence, the investor base of European issuers expanded beyond their respective home states. We hypothesize that the demand for an international standard contract law increased as the national securities markets converged into a single Euro area market. Using a difference-in-difference approach, we show that there is a strong and significant shift to English law for debt securities in Euro area member states as compared to other European countries. Our results are robust to alternative hypotheses and various statistical tests. Choice of law in debt securities may follow a market standard rather than quality differences among the competing contract laws.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.socialpolitik.org/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hale, Galina B. & Spiegel, Mark M., 2012. "Currency composition of international bonds: The EMU effect," Journal of International Economics, Elsevier, vol. 88(1), pages 134-149.
- Wesley Hartmann & Puneet Manchanda & Harikesh Nair & Matthew Bothner & Peter Dodds & David Godes & Kartik Hosanagar & Catherine Tucker, 2008. "Modeling social interactions: Identification, empirical methods and policy implications," Marketing Letters, Springer, vol. 19(3), pages 287-304, December.
- Joseph Farrell & Garth Saloner, 1985.
"Standardization, Compatibility, and Innovation,"
RAND Journal of Economics,
The RAND Corporation, vol. 16(1), pages 70-83, Spring.
- Daniel Birke, 2009.
"The Economics Of Networks: A Survey Of The Empirical Literature,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 23(4), pages 762-793, 09.
- Daniel Birke, 2008. "The economics of networks - A survey of the empirical literature," Occasional Papers 22, Industrial Economics Division.
- Stambaugh, Robert F., 1999.
Journal of Financial Economics,
Elsevier, vol. 54(3), pages 375-421, December.
- Coeurdacier, Nicolas & Martin, Philippe, 2006.
"The Geography of Asset Trade and the Euro: Insiders and Outsiders,"
ESSEC Working Papers
DR 06020, ESSEC Research Center, ESSEC Business School.
- Coeurdacier, Nicolas & Martin, Philippe, 2009. "The geography of asset trade and the euro: Insiders and outsiders," Journal of the Japanese and International Economies, Elsevier, vol. 23(2), pages 90-113, June.
- Nicolas Coeurdacier & Philippe Martin, 2009. "The geography of asset trade and the euro: Insiders and outsiders," NBER Chapters, in: Financial Globalization, 20th Anniversary Conference, NBER-TCER-CEPR National Bureau of Economic Research, Inc.
- Coeurdacier, Nicolas & Martin, Philippe, 2007. "The geography of asset trade and the euro: insiders and outsiders," CEPREMAP Working Papers (Docweb) 0701, CEPREMAP.
- Coeurdacier, Nicolas & Martin, Philippe, 2007. "The Geography of Asset Trade and the Euro: Insiders and Outsiders," CEPR Discussion Papers 6032, C.E.P.R. Discussion Papers.
- Banerji, A & Dutta, Bhaskar, 2005.
"Local Network Externalities and Market Segmentation,"
The Warwick Economics Research Paper Series (TWERPS)
725, University of Warwick, Department of Economics.
- Banerji, A. & Dutta, Bhaskar, 2009. "Local network externalities and market segmentation," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 605-614, September.
- A. Banerji & Bhaskar Dutta, 2008. "Local network externalities and market segmentation," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 08-13, Indian Statistical Institute, New Delhi, India.
- Philip R. Lane, 2006.
"Global Bond Portfolios and EMU,"
International Journal of Central Banking,
International Journal of Central Banking, vol. 2(2), May.
- Lane, Philip R., 2005. "Global bond portfolios and EMU," Working Paper Series 0553, European Central Bank.
- Lane, Philip R, 2005. "Global Bond Portfolios and EMU," MPRA Paper 654, University Library of Munich, Germany, revised 15 Feb 2006.
- Philip R. Lane, 2006. "Global Bond Portfolios and EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp168, IIIS.
- De Santis, Robert A. & Gérard, Bruno, 2009. "International portfolio reallocation: Diversification benefits and European monetary union," European Economic Review, Elsevier, vol. 53(8), pages 1010-1027, November.
- Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Peydró, José-Luis, 2010.
"What lies beneath the euro's effect on financial integration? Currency risk, legal harmonization, or trade?,"
Working Paper Series
1216, European Central Bank.
- Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Peydró, José-Luis, 2010. "What lies beneath the euro's effect on financial integration? Currency risk, legal harmonization, or trade?," Journal of International Economics, Elsevier, vol. 81(1), pages 75-88, May.
- Sebnem Kalemli-Ozcan & Elias Papaioannou & José-Luis Peydró, 2009. "What Lies Beneath the Euro's Effect on Financial Integration: Currency Risk, Legal Harmonization, or Trade?," NBER Working Papers 15034, National Bureau of Economic Research, Inc.
- Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Peydró, José Luis, 2009. "What Lies Beneath the Euro's Effect on Financial Integration? Currency Risk, Legal Harmonization, or Trade?," CEPR Discussion Papers 7314, C.E.P.R. Discussion Papers.
- Fjeldstad, Øystein & Moen, Espen R & Riis, Christian, 2010. "Competition with Local Network Externalities," CEPR Discussion Papers 7778, C.E.P.R. Discussion Papers.
- Stavros Peristiani & Joao A. C. Santos, 2010. "Has the US Bond Market Lost its Edge to the Eurobond Market?," International Review of Finance, International Review of Finance Ltd., vol. 10(Financial), pages 149-183.
- repec:spo:wpmain:info:hdl:2441/c8dmi8nm4pdjkuc9g7287gghh is not listed on IDEAS
- João A. C. Santos & Kostas Tsatsaronis, 2003. "The cost of barriers to entry: evidence from the market for corporate euro bond underwriting," BIS Working Papers 134, Bank for International Settlements.
- Jeffrey Church & Ian King, 1993. "Bilingualism and Network Externalities," Canadian Journal of Economics, Canadian Economics Association, vol. 26(2), pages 337-45, May.
- Balli, Faruk & Basher, Syed Abul & Ozer-Balli, Hatice, 2010.
"From Home Bias to Euro Bias: Disentangling the Effects of Monetary Union on the European Financial Markets,"
22430, University Library of Munich, Germany.
- Balli, Faruk & Basher, Syed Abul & Ozer-Balli, Hatice, 2010. "From home bias to Euro bias: Disentangling the effects of monetary union on the European financial markets," Journal of Economics and Business, Elsevier, vol. 62(5), pages 347-366, September.
- Manski, C.F., 1991.
"Identification of Endogenous Social Effects: the Reflection Problem,"
9127, Wisconsin Madison - Social Systems.
- Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 531-42, July.
- Jeffrey Rohlfs, 1974. "A Theory of Interdependent Demand for a Communications Service," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 16-37, Spring.
- Haselmann, Rainer & Herwartz, Helmut, 2010. "The introduction of the Euro and its effects on portfolio decisions," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 94-110, February.
- Valeri V. Nikolaev, 2010. "Debt Covenants and Accounting Conservatism," Journal of Accounting Research, Wiley Blackwell, vol. 48(1), pages 51-89, 03.
- Liebowitz, S J & Margolis, Stephen E, 1990. "The Fable of the Keys," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 1-25, April.
- Darius P. Miller & Natalia Reisel, 2012. "Do Country-level Investor Protections Affect Security-level Contract Design? Evidence from Foreign Bond Covenants," Review of Financial Studies, Society for Financial Studies, vol. 25(2), pages 408-438.
- Melnik, Arie & Nissim, Doron, 2006. "Issue costs in the Eurobond market: The effects of market integration," Journal of Banking & Finance, Elsevier, vol. 30(1), pages 157-177, January.
- David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May.
- Arun Sundararajan, 2004. "Local Network Effects and Network Structure," Industrial Organization 0412011, EconWPA.
- Nicolae Garleanu & Jeffrey Zwiebel, 2009. "Design and Renegotiation of Debt Covenants," Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 749-781, February.
- Häseler, Sönke, 2010. "Trustees versus fiscal agents and default risk in international sovereign bonds," MPRA Paper 35332, University Library of Munich, Germany.
- Adams, Michael, 1996. "Norms, standards, rights," European Journal of Political Economy, Elsevier, vol. 12(2), pages 363-375, September.
When requesting a correction, please mention this item's handle: RePEc:zbw:vfsc13:79867. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.