IDEAS home Printed from https://ideas.repec.org/a/oup/rfinst/v34y2021i12p5933-5976..html
   My bibliography  Save this article

The Price of Law: The Case of the Eurozone Collective Action Clauses
[Unbundling institutions]

Author

Listed:
  • Elena Carletti
  • Paolo Colla
  • Mitu Gulati
  • Steven Ongena

Abstract

We analyze the price effect of the introduction of collective action clauses (CACs) in newly issued sovereign bonds of eurozone countries as of January 1, 2013. By allowing a majority of creditors to modify payment obligations, such clauses reduce the likelihood of holdouts, while facilitating strategic default by the sovereign. We find that CAC bonds trade in the secondary market at lower yields than otherwise similar no-CAC bonds. The yield differential widens in countries with worse ratings and in those with stronger legal systems, especially if of midrange quality. Hence, CACs are seen as pro- rather than anticreditor provisions.

Suggested Citation

  • Elena Carletti & Paolo Colla & Mitu Gulati & Steven Ongena, 2021. "The Price of Law: The Case of the Eurozone Collective Action Clauses [Unbundling institutions]," The Review of Financial Studies, Society for Financial Studies, vol. 34(12), pages 5933-5976.
    • Handle: RePEc:oup:rfinst:v:34:y:2021:i:12:p:5933-5976.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rfs/hhaa140
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Schumacher, Julian & Trebesch, Christoph & Enderlein, Henrik, 2021. "Sovereign defaults in court," Journal of International Economics, Elsevier, vol. 131(C).
    2. Chuck Fang & Julian Schumacher & Christoph Trebesch, 2021. "Restructuring Sovereign Bonds: Holdouts, Haircuts and the Effectiveness of CACs," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 69(1), pages 155-196, March.
    3. Patrick Bolton & Mitu Gulati & Ugo Panizza, 2023. "Sovereign Debt Puzzles," Annual Review of Financial Economics, Annual Reviews, vol. 15(1), pages 239-263, November.
    4. Silvia Marchesi & Tania Masi & Pietro Bomprezzi, 2021. "Is to Forgive to Forget? Sovereign Risk in the Aftermath of a Default," Development Working Papers 475, Centro Studi Luca d'Agliano, University of Milano.
    5. Lotfi, Somayyeh & Milidonis, Andreas & Zenios, Stavros A., 2024. "Mispricing of debt expansion in the eurozone sovereign credit market," Journal of Financial Stability, Elsevier, vol. 70(C).
    6. Sebastian M. Saiegh & Glen Biglaiser, 2024. "The value of legal recourse in sovereign bond markets: Evidence from Argentina," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 21(3), pages 669-709, September.
    7. Committeri, Marco & Alves, Inês & Arthur, Julien & De Marchi, Raffaele & Essers, Dennis & Keeney, Mary & Kosterink, Patrick & Lieber, Alexander & Martinez-Resano, José Ramon & Osińska, Joanna & Spadaf, 2021. "The IMF’s role in sovereign debt restructurings," Occasional Paper Series 262, European Central Bank.

    More about this item

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:34:y:2021:i:12:p:5933-5976.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/sfsssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.