Sovereign Risk after Sovereign Restructuring. Private and Official Defaults

79 Pages Posted: 2 Dec 2019

See all articles by Silvia Marchesi

Silvia Marchesi

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS); University of Milan - Centro Studi Luca d'Agliano (LdA) ; Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

Tania Masi

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

Date Written: November 27, 2019

Abstract

This paper studies the relationship between sovereign debt default and sovereign credit risk by taking into account the depth of a debt restructuring and by distinguishing between commercial and official debt. We take different proxies for credit risk measures, such as rating agencies and institutional investors' ratings as well as bond yield spreads (EMBIG). By controlling for both the occurrence and the magnitude of debt defaults, we find that commercial and official defaults are associated with different outcomes. Private defaults seem to involve some reputational costs up to seven years since the last agreement, while official defaulters are not affected (or may even benefit) by the restructuring episodes. Using the Synthetic Control Method, we find further evidence for the heterogeneity of the economic impact of debt restructurings, confirming that official and private defaults may have different costs and then induce selective defaults.

Keywords: Sovereign defaults, Credit Rating Agencies, Institutional Investors, Synthetic control method

JEL Classification: F34, G15, G24, H63

Suggested Citation

Marchesi, Silvia and Masi, Tania, Sovereign Risk after Sovereign Restructuring. Private and Official Defaults (November 27, 2019). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 423, November 2019. Available at SSRN: https://ssrn.com/abstract=3494597

Silvia Marchesi (Contact Author)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milano, 20126
Italy
+39 02 64483057 (Phone)

HOME PAGE: http://https://sites.google.com/site/ssilviamarchesi/home

Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milano, 20126
Italy

University of Milan - Centro Studi Luca d'Agliano (LdA)

Via P. Amedeo 34
Milano, Mi 20122
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

Tania Masi

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

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