The Price of Law: The Case of the Eurozone Collective Action Clauses

Unbundling institutions

Elena Carletti, Paolo Colla, Mitu Gulati and Steven Ongena

The Review of Financial Studies, 2021, vol. 34, issue 12, 5933-5976

Abstract: We analyze the price effect of the introduction of collective action clauses (CACs) in newly issued sovereign bonds of eurozone countries as of January 1, 2013. By allowing a majority of creditors to modify payment obligations, such clauses reduce the likelihood of holdouts, while facilitating strategic default by the sovereign. We find that CAC bonds trade in the secondary market at lower yields than otherwise similar no-CAC bonds. The yield differential widens in countries with worse ratings and in those with stronger legal systems, especially if of midrange quality. Hence, CACs are seen as pro- rather than anticreditor provisions.

JEL-codes: F33 G12 H63 K12 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Working Paper: The Price of Law: The Case of the Eurozone Collective Action Clauses (2017)
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