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Developing Country Debt and the Market Value of Large Commercial Banks

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  • Steven C. Kyle
  • Jeffrey Sachs

Abstract

The effect on commercial banks of exposure to large amounts of developing country debt has been a topic of increasing concern in recent years. Fear of default on the part of the debtor countries has led to fears for the solvency of the creditor banks since in many cases the total of outstanding exposure to risky debtors exceeds the entire capital base of the banks involved. The paper presents a first effort towards measuring the effects of LDC debt exposure on the market value of large commercial value banks in the United States. Our results indicate that exposure to developing country debt has exerted a measurable and significant negative effect on the ratio of market to book value for these banks.

Suggested Citation

  • Steven C. Kyle & Jeffrey Sachs, 1984. "Developing Country Debt and the Market Value of Large Commercial Banks," NBER Working Papers 1470, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1470
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    References listed on IDEAS

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    1. Laurie Goodman & William F. Sharpe, 1978. "Perspective on Bank Capital Adequacy: Time-Series Analysis," NBER Working Papers 0247, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Sule Ozler, 1986. "Valuation of Rescheduled Loans, 1978-1983: A Rational Expectations Approach," UCLA Economics Working Papers 414, UCLA Department of Economics.
    2. Sule Ozler, 1988. "Rescheduling and Bank Value: A Rational Expectations Approach," UCLA Economics Working Papers 488, UCLA Department of Economics.
    3. Jeffrey D. Sachs, 1987. "International Policy Coordination: The Case of the Developing Country Debt Crisis," NBER Working Papers 2287, National Bureau of Economic Research, Inc.
    4. Bulow, Jeremy & Rogoff, Kenneth, 1989. "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 155-178, February.
    5. Dollar, David, 1990. "Economic Reform and Allocative Efficiency in China's State-Owned Industry," Economic Development and Cultural Change, University of Chicago Press, vol. 39(1), pages 89-105, October.
    6. Fafchamps, Marcel, 1996. "Sovereign debt, structural adjustment, and conditionality," Journal of Development Economics, Elsevier, vol. 50(2), pages 313-335, August.
    7. Huizinga, Harry, 1989. "How has the debt crisis affected commercial banks?," Policy Research Working Paper Series 195, The World Bank.
    8. Shimokawa, Satoru & Kyle, Steven C., 2003. "Transmission of Shocks Through International Lending of Commercial Banks to LDCs," Working Papers 127238, Cornell University, Department of Applied Economics and Management.

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