Evidence for Relational Contracts in Sovereign Bank Lending
Cosmin Ilut and
Peter Benczur ()
No 91, 2010 Meeting Papers from Society for Economic Dynamics
This paper presents direct evidence for relational (self-enforcing dynamic) contracts in sovereign bank lending. Unlike the existing empirical literature, its instrumental variables method allows for distinguishing a direct influence of past repayment problems on current spreads (a ``punishment" effect in prices) from an indirect effect through higher expected future default probabilities. Such a punishment provides positive surplus to lenders after a default, a feature that characterizes relational contracts. Using developing country data for 1973-1981 and constructing continuous variables for credit history, we find evidence that most of the influence of past repayment problems is through the direct, punishment channel.
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Journal Article: EVIDENCE FOR RELATIONAL CONTRACTS IN SOVEREIGN BANK LENDING (2016)
Journal Article: Evidence for Relational Contracts in Sovereign Bank Lending (2016)
Working Paper: Evidence for Relational Contracts in Sovereign Bank Lending (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed010:91
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