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

Elena Carletti, Paolo Colla, G. Mitu Gulati and Steven Ongena
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Elena Carletti: Bocconi University and European University Institute
Paolo Colla: Bocconi University
G. Mitu Gulati: Duke University School of Law

No 17-35, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Do markets value contract protections and does the quality of a legal system affect such valuations? We answer these questions by analysing a quasi-natural experiment whereby after January 1, 2013, newly issued sovereign bonds of all Eurozone countries started to include Collective Action Clauses (CACs) specifying the minimum vote needed to modify repayment. We find that the new contract term is priced, i.e., CAC bonds trade at lower yields relative to otherwise similar bonds that do not include CACs, and also that the quality of the legal system matters for this differential: The better the legal system, the lower the yield.

Keywords: collective action clauses; sovereign yields; reputation of law (search for similar items in EconPapers)
JEL-codes: G15 G18 H63 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2017-11
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: The Price of Law: The Case of the Eurozone Collective Action Clauses (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1735

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