The Sovereign Debt Listing Puzzle

62 Pages Posted: 19 Oct 2016 Last revised: 28 Apr 2018

See all articles by Elisabeth de Fontenay

Elisabeth de Fontenay

Duke University School of Law

Josefin Meyer

Ludwig Maximilian University of Munich

G. Mitu Gulati

Duke University School of Law

Date Written: April 19, 2018

Abstract

Why do almost all sovereign nations list their international bonds on stock exchanges? We examine several hypotheses for what drives sovereigns to list and where. In particular, we test the often invoked “bonding hypothesis,” which posits that exchanges perform a certification and monitoring role. We find little support for the bonding hypothesis today: we find no consistent association between the exchange chosen for a sovereign-bond issue and its yield. Sovereign-bond listings today, we argue, are primarily a form of regulatory arbitrage. Across the globe, certain institutional investors may hold foreign securities only if they are listed on an exchange. Sovereigns are thus incentivized to list their bonds, but to seek out the least restrictive exchange that qualifies, triggering a race to the bottom among exchanges. Sovereign-bond listings do not appear to add value for investors.

Keywords: bonding, sovereign debt, stock exchange, listing

JEL Classification: C20, F34, G15, H63, K12

Suggested Citation

de Fontenay, Elisabeth and Meyer, Josefin and Gulati, Gaurang Mitu, The Sovereign Debt Listing Puzzle (April 19, 2018). Duke Law School Public Law & Legal Theory Series No. 2017-4. Available at SSRN: https://ssrn.com/abstract=2853917 or http://dx.doi.org/10.2139/ssrn.2853917

Elisabeth De Fontenay (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Josefin Meyer

Ludwig Maximilian University of Munich ( email )

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

Gaurang Mitu Gulati

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

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