The Sovereign Debt Listing Puzzle
62 Pages Posted: 19 Oct 2016 Last revised: 28 Apr 2018
Date Written: April 19, 2018
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: Suggested Citation