Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs?

• Authors: Kay Chung , Michael G. Papaioannou

Abstracts

EN

This paper analyzes the effects of including collective action clauses (CACs) and enhanced CACs in international (nondomestic law-governed) sovereign bonds on sovereigns’ borrowing costs, using secondary-market bond yield spreads. Our findings indicate that inclusion of enhanced CACs, introduced in August 2014, is associated with lower borrowing costs for both noninvestment-grade and investment-grade issuers. These results suggest that market participants do not associate the use of CACs and enhanced CACs with borrowers’ moral hazard, but instead consider their implied benefits of an orderly and efficient debt resolution process in case of restructuring.

Keywords

EN

collective action clause; sovereign bond contractual clause; governing law; default; bond spreads; sovereign cost of borrowing; sovereign debt restructuring

• Publisher: Uniwersytet Warszawski. Wydział Nauk Ekonomicznych
• Journal: Journal of Banking and Financial Economics
• Year: 2021
• Issue: 1(15)
• Pages: 59-87

Dates

published

2021

Contributors

author

Kay Chung

• International Monetary Fund

• https://orcid.org/0000000328102132

author

Michael G. Papaioannou

• LeBow College of Business

• https://orcid.org/0000000324208319

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Identifiers

DOI

10.7172/2353-6845.jbfe.2021.1.5

Biblioteka Nauki

2048280