Bond Restructuring and Moral Hazard: Are Collective Action Clauses Costly?

By Torbjörn Becker, Anthony Richards, Yunyong Thaicharoen. Social Science Research Network, 2001

116 citations recorded by the source corpus.

Many official groups have endorsed the wider use by emerging market borrowers of contract clauses which allow for a qualified majority of bondholders to restructure repayment terms in the event of financial distress. Some have argued that such clauses will be associated with moral hazard and increased borrowing costs. This paper addresses this question empirically using primary and secondary market yields and finds no evidence that the presence of collective action clauses increases yields for either higher- or lower-rated issuers. By implication, the perceived benefits from easier restructuring are at least as large as any costs from increased moral hazard.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/6d13db6d850cc1736ceb814dbdac1fdb03a59497

Citations in the corpus

• Holdouts in Sovereign Debt Restructuring: A Theory of Negotiation in a Weak Contractual Environment (2012, unknown): “where the RHS is the expected discount factor with two normal creditors from example 1, equation (4).”
• What is an Emerging Market? (2004, unknown): “There has been some debate about whether the differing degrees of commitment have had economic costs (Becker, Richards, and Thaicharoen 2003).”