Sovereign Debt Default: The Impact of Creditor Composition

Amrita Dhillon (), Javier García-Fronti and Lei Zhang ()

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: The main motivation of this paper is to study the impact of the composition of creditors on the probability of default and the risk premium on sovereign bonds, when there is debtor moral hazard. In the absence of any legal enforcement, relational contracts work only when there are creditors who have a repeated relationship with the borrower. We show that ownership structures with a larger fraction of long term lenders are associated with a lower default probability and lower risk premia. Moreover, competitive markets structures lead to loss in efficiency as well when there is moral hazard, in contrast to the case with perfect enforceability and information.

Keywords: Sovereign default; Institutions; Reputation; Uncertainty (search for similar items in EconPapers)
JEL-codes: D82 D86 F34 G34 H63 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Sovereign Debt Default: The Impact of Creditor Composition (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:901

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