Government Debt, Reputation and Creditors' Protections: The Tale of San Giorgio

Review of Finance, Vol. 10, pp. 487-506, 2006

37 Pages Posted: 20 Feb 2007

See all articles by Michele U. Fratianni

Michele U. Fratianni

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Universita' Politecnica delle Marche

Abstract

San Giorgio (1407-1805) was a formal association aimed at protecting creditors' rights and reducing the risk of debt repudiation by the Republic of Genoa. The behavior of this institution is broadly consistent with debt models that predict lending if lenders can impose big penalties on debtors, and models in which lenders can differentiate between excusable and inexcusable defaults. San Giorgio shareholders enjoyed low credit risk but also lower returns on capital than those prevailing on comparable foreign assets for which creditors' protection mechanisms were lacking. The Republic's quid pro quo was a low cost of financing. Differences in credit risk were an important explanation of differences in long-term interest rates across countries in 16th and 17th century Europe, a point not sufficiently emphasized by the literature.

Keywords: Financial revolution, credibility, debt, public bank, Genoa, Venice

JEL Classification: F34, H63, N13

Suggested Citation

Fratianni, Michele, Government Debt, Reputation and Creditors' Protections: The Tale of San Giorgio. Review of Finance, Vol. 10, pp. 487-506, 2006. Available at SSRN: https://ssrn.com/abstract=956348

Michele Fratianni (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-855-3360 (Phone)
812-855-3354 (Fax)

Universita' Politecnica delle Marche ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
39-071-2207120 (Phone)

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