Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs?

Author/Editor:

Kay Chung ; Michael G. Papaioannou

Publication Date:

August 7, 2020

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

This paper analyzes the effects of including collective action clauses (CACs) and enhanced CACs in international (nondomestic law-governed) sovereign bonds on sovereigns’ borrowing costs, using secondary-market bond yield spreads. Our findings indicate that inclusion of enhanced CACs, introduced in August 2014, is associated with lower borrowing costs for both noninvestment-grade and investment-grade issuers. These results suggest that market participants do not associate the use of CACs and enhanced CACs with borrowers’ moral hazard, but instead consider their implied benefits of an orderly and efficient debt resolution process in case of restructuring.

Series:

Working Paper No. 20/162

English

Publication Date:

August 7, 2020

ISBN/ISSN:

9781513526843/1018-5941

Stock No:

WPIEA2020162

Format:

Paper

Pages:

44

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