Sovereign debt default: the impact of creditor composition
Dhillon, Amrita, García Fronti, Javier I. and Zhang, Lei, Dr. (2009) Sovereign debt default: the impact of creditor composition. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.901).
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The main motivation of this paper is to study the impact of the composition of creditors on the probability of default and the risk premium on sovereign bonds, when there is debtor moral hazard. In the absence of any legal enforcement, relational contracts work only when there are creditors who have a repeated relationship with the borrower. We show that ownership structures with a larger fraction of long term lenders are associated with a lower default probability and lower risk premia. Moreover, competitive markets structures lead to loss in efficiency as well when there is moral hazard, in contrast to the case with perfect enforceability and information.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HJ Public Finance|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Debts, Public, Debtor and creditor, Expenditures, Public, Contracts -- Economic aspects|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Official Date:||March 2009|
|Number of Pages:||21|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Economic and Social Research Council (Great Britain) (ESRC)|
|Grant number:||RES-165-25-0006 (ESRC), RES- 165-25-0006 (ESRC)|
Bulow, J., and K. Rogoff (1989): “A Constant Recontracting Model of Sovereign Debt,” Journal
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