Debt rescheduling and the choice between bonds and loans for LDCs' foreign debt

Edward Chow

Open Economies Review, 1994, vol. 5, issue 2, 139-157

Abstract: This paper examines less developed country (LDC) borrowers' choice of financing methods. I devleop and test the hypothesis that ex-ante consideration of rescheduling affects LDC borrowers' choice between bonds and commercial loans. Banks can monitor and distinguish between permanent and temporary shocks, while bondholders cannot. Therefore, debt rescheduling based on the nature of economic shocks is feasible with loan financing. Our empirical findings indicate the debt rescheduling is considered exante in LDC lending. In addition, default risk and contract size affect the choice of financing instruments. Copyright Kluwer Academic Publishers 1994

Keywords: bonds; loans; permanent shock; temporary shock; debt rescheduling/reduction (search for similar items in EconPapers)
Date: 1994
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DOI: 10.1007/BF01000484

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