Evidence for Relational Contracts in Sovereign Bank Lending

Cosmin Ilut and Peter Benczur

No 91, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: 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.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2010/paper_91.pdf (application/pdf)

Related works:
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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed010:91

Access Statistics for this paper

More papers in 2010 Meeting Papers from Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().