Sovereign Debt Restructurings: Preemptive or Post-Default

By T. Asonuma, Christoph Trebesch. Social Science Research Network, 2015

181 citations recorded by the source corpus.

Sovereign debt restructurings can be implemented preemptively - prior to a payment default. We code a comprehensive new dataset and find that preemptive restructurings (i) are frequent (38% of all deals 1978-2010), (ii) have lower haircuts, (iii) are quicker to negotiate, and (iv) see lower output losses. To rationalize these stylized facts, we build a quantitative sovereign debt model that incorporates preemptive and post-default renegotiations. The model improves the fit with the data and explains the sovereign's optimal choice: preemptive restructurings occur when default risk is high ex-ante, while defaults occur after unexpected bad shocks. Empirical evidence supports these predictions.

Subfields: Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/9119df5cc2198546bfeb2e290caf058087f621dc

Citations in the corpus

• International Reserves and Rollover Risk (2013, unknown): “31 Asonuma and Trebesch (2016) document that sovereign debt crises are associated with 2 percent lower annual GDP growth in the first two crisis years, consistently with the findings of previous studies. and spread increase with high risk premium targeted in the benchmark calibration.”