Collective Action Clauses: How Do They Weigh on Sovereigns?
51 Pages Posted: 21 Feb 2013
Date Written: January 30, 2013
Abstract
We study the effects of the adoption of collective action clauses (CACs) on government bond yields by exploiting secondary market data on sovereigns quoted in international markets from March 2007 to April 2011. CACs are assessed security by security. Using a panel data approach, we find a U-shaped effect of CACs on yields according to credit rating of the issuer. While the impact is negligible for the highest ratings, there emerges a significant yield discount for mid-ratings, which is smaller for bad ratings and possibly insignificant for the worst ratings. The relationship appears fairly robust across a number of robustness checks. This evidence may reflect the fact that CACs are valuable as they help orderly restructuring unless the perceived probability of default is too small. Nevertheless, at low ratings this relevance can be weakened by an increasing moral hazard risk.
Keywords: Collective Action Clauses (CACs), sovereign yields, debt restructuring, default, panel data
JEL Classification: F34, G15, H63
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Would Collective Action Clauses Raise Borrowing Costs?
By Barry Eichengreen and Ashoka Mody
-
Financial Crises and Reform of the International Financial System
-
Bankruptcy Procedures for Sovereigns: A History of Ideas, 1976-2001
-
Structuring and Restructuring Sovereign Debt: The Role of Seniority
By Patrick Bolton and Olivier Jeanne
-
Structuring and Restructuring Sovereign Debt: The Role of Seniority
By Patrick Bolton and Olivier Jeanne
-
Structuring and Restructuring Sovereign Debt: The Role of a Bankruptcy Regime
By Patrick Bolton and Olivier Jeanne
-
Sovereign Bonds and the Collective Will
By Lee C. Buchheit, Mitu Gulati, ...
-
Exit Consents in Sovereign Bond Exchanges
By Lee C. Buchheit and Mitu Gulati