Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs?
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...
Saved in:
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
University of Warsaw
2021-10-01
|
| Series: | Journal of Banking and Financial Economics |
| Subjects: | |
| Online Access: | https://press.wz.uw.edu.pl/cgi/viewcontent.cgi?article=1031&context=jbfe |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1841562959976857600 |
|---|---|
| author | Kay Chung Michael G. Papaioannou |
| author_facet | Kay Chung Michael G. Papaioannou |
| author_sort | Kay Chung |
| collection | DOAJ |
| description | 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. |
| format | Article |
| id | doaj-art-e98e0e1d988c4d26b6f30fc35216d598 |
| institution | Kabale University |
| issn | 2353-6845 |
| language | English |
| publishDate | 2021-10-01 |
| publisher | University of Warsaw |
| record_format | Article |
| series | Journal of Banking and Financial Economics |
| spelling | doaj-art-e98e0e1d988c4d26b6f30fc35216d5982025-01-03T00:36:14ZengUniversity of WarsawJournal of Banking and Financial Economics2353-68452021-10-0120211(15)598710.7172/2353-6845.jbfe.2021.1.5Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs?Kay Chung0https://orcid.org/0000-0003-2810-2132Michael G. Papaioannou1https://orcid.org/0000-0003-2420-8319International Monetary FundLeBow College of BusinessThis 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.https://press.wz.uw.edu.pl/cgi/viewcontent.cgi?article=1031&context=jbfecollective action clausesovereign bond contractual clausegoverning lawsovereign debt restructuringdefaultbond spreadssovereign cost of borrowing |
| spellingShingle | Kay Chung Michael G. Papaioannou Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs? Journal of Banking and Financial Economics collective action clause sovereign bond contractual clause governing law sovereign debt restructuring default bond spreads sovereign cost of borrowing |
| title | Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs? |
| title_full | Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs? |
| title_fullStr | Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs? |
| title_full_unstemmed | Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs? |
| title_short | Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs? |
| title_sort | do enhanced collective action clauses affect sovereign borrowing costs |
| topic | collective action clause sovereign bond contractual clause governing law sovereign debt restructuring default bond spreads sovereign cost of borrowing |
| url | https://press.wz.uw.edu.pl/cgi/viewcontent.cgi?article=1031&context=jbfe |
| work_keys_str_mv | AT kaychung doenhancedcollectiveactionclausesaffectsovereignborrowingcosts AT michaelgpapaioannou doenhancedcollectiveactionclausesaffectsovereignborrowingcosts |