IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/2771.html
   My bibliography  Save this paper

The Simple Analytics of Debt-Equity Swaps

Author

Listed:
  • Elhanan Helpman

Abstract

Recent attempts to resolve the international debt crisis have lead some countries to engage in debt-equity swaps. The paper explores conditions under which such transactions are beneficial to the debtor as well as the creditors. It identifies a market failure that may prevent the emergence of actually beneficial swaps and analyzes the effects of swaps on the investment level in the debtor country. The latter helps to evaluate the contribution of this policy to future difficulties with debt service payments.

Suggested Citation

  • Elhanan Helpman, 1988. "The Simple Analytics of Debt-Equity Swaps," NBER Working Papers 2771, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2771
    Note: ITI IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w2771.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Michael P. Dooley, 1988. "Buy-Backs and Market Valuation of External Debt," IMF Staff Papers, Palgrave Macmillan, vol. 35(2), pages 215-229, June.
    3. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Agenor, Pierre-Richard & Aizenman, Joshua, 1998. "Volatility and the welfare costs of financial market integration," Policy Research Working Paper Series 1974, The World Bank.
    2. Aizenman, Joshua & Powell, Andrew, 2003. "Volatility and financial intermediation," Journal of International Money and Finance, Elsevier, vol. 22(5), pages 657-679, October.
    3. Cohen, Daniel, 1995. "Large external debt and (slow) domestic growth a theoretical analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(5-7), pages 1141-1163.
    4. Claessens, Stijn & Oks, Daniel & van Wijnbergen, Sweder, 1993. "Interest rates, growth, and external debt : the macroeconomic impact of Mexico's Brady deal," Policy Research Working Paper Series 1147, The World Bank.
    5. Fernando Broner & Alberto Martin & Jaume Ventura, 2010. "Sovereign Risk and Secondary Markets," American Economic Review, American Economic Association, vol. 100(4), pages 1523-1555, September.
    6. Elhanan Helpman, 1989. "Voluntary Debt Reduction: Incentives and Welfare," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 580-611, September.
    7. Cohen, Daniel & Verdier, Thierry, 1995. "'Secret' buy-backs of LDC debt," Journal of International Economics, Elsevier, vol. 39(3-4), pages 317-334, November.
    8. Peter Sinclair, 2011. "Deficits, Debts and Defaults - Past, Present and Future," Discussion Papers 11-20, Department of Economics, University of Birmingham.
    9. Joshua Aizenman & Stephen J. Turnovsky, 2002. "Reserve Requirements on Sovereign Debt in the Presence of Moral Hazard -- on Debtors or Creditors?," Economic Journal, Royal Economic Society, vol. 112(476), pages 107-132, January.
    10. Baek, In-Mee & Bandopadhyaya, Arindam, 1996. "The determinants of the duration of commercial bank debt renegotiation for sovereigns," Journal of Banking & Finance, Elsevier, vol. 20(4), pages 673-685, May.
    11. N.M. Healey, 1994. "The international debt crisis: the end of the beginning, not yet the beginning of the end," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 47(188), pages 75-97.
    12. N.M. Healey, 1994. "The international debt crisis: the end of the beginning, not yet the beginning of the end," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 47(188), pages 75-97.
    13. Bowe, M. & Dean, J.W., 1997. "Has the Market Solved the Sovereign-Debt Crisis?," Princeton Studies in International Economics 83, International Economics Section, Departement of Economics Princeton University,.
    14. Strand, Jon, 1995. "Lending terms, debt concessions, and developing countries' resource extraction," Resource and Energy Economics, Elsevier, vol. 17(2), pages 99-117, August.
    15. Pierre-Richard Agenor & Joshua Aizenman, 1999. "Financial Sector Inefficiencies and Coordinate Failures: Implications for Crisis Management," NBER Working Papers 7446, National Bureau of Economic Research, Inc.
    16. Jeremy Bulow & Kenneth Rogoff, 1991. "Sovereign Debt Repurchases: No Cure for Overhang," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1219-1235.
    17. Pierre-Richard Agénor & Joshua Aizenman, 2005. "Financial sector inefficiencies and the debt Laffer curve," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(1), pages 1-13.
    18. Bulow, Jeremy & Rogoff, Kenneth & Ning S. Zhu & DEC & a descri & Buyback arrangements, 1994. "Estimating the efficiency gains of debt restructuring," Policy Research Working Paper Series 1317, The World Bank.
    19. Van Wijnbergen, Sweder, 1990. "Cash/debt buy-backs and the insurance value of reserves," Journal of International Economics, Elsevier, vol. 29(1-2), pages 123-131, August.
    20. Vivian Lei & Steven Tucker & Filip Vesely, 2010. "Forgive or buy back: an experimental study of debt relief," Review of Economic Design, Springer;Society for Economic Design, vol. 14(3), pages 291-309, September.
    21. Luisa Corrado, 2003. "Beyond the Sovereign Debt Crisis: Alternative Forms of Market‐Based Debt Restructuring Schemes," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(1), pages 17-40, February.
    22. Joshua Aizenman & Michael Gavin & Ricardo Hausmann, 2001. "Optimal tax and debt policy with endogenously imperfect creditworthiness," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 9(4), pages 367-395.
    23. Cabral, Celia C., 1996. "Evaluating debt repurchases What are the alternatives to investment?," Journal of International Economics, Elsevier, vol. 40(3-4), pages 477-494, May.
    24. Agenor, Pierre-Richard & Aizenman, Joshua, 1999. "Financial sector inefficiencies and coordination failures : implications for crisis management," Policy Research Working Paper Series 2185, The World Bank.
    25. Bandopadhyaya, Arindam, 1995. "A reexamination of the efficiency of price and output indexed sovereign debt contracts," Journal of Economics and Business, Elsevier, vol. 47(1), pages 57-64, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carré, Sylvain & Cohen, Daniel & Villemot, Sébastien, 2019. "The sources of sovereign risk: a calibration based on Lévy stochastic processes," Journal of International Economics, Elsevier, vol. 118(C), pages 31-43.
    2. Eduardo Borensztein & Ugo Panizza, 2009. "The Costs of Sovereign Default," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 683-741, November.
    3. Dan Galai & Zvi Wiener, 2012. "Credit Risk Spreads in Local and Foreign Currencies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 883-901, August.
    4. Fernando Broner & Alberto Martin & Jaume Ventura, 2010. "Sovereign Risk and Secondary Markets," American Economic Review, American Economic Association, vol. 100(4), pages 1523-1555, September.
    5. Berardi, Andrea & Ciraolo, Stefania & Trova, Michele, 2004. "Predicting default probabilities and implementing trading strategies for emerging markets bond portfolios," Emerging Markets Review, Elsevier, vol. 5(4), pages 447-469, December.
    6. Michael Bowe & James W. Dean, 1997. "Debt-equity swaps and the enforcement of sovereign loan contracts," Journal of International Development, John Wiley & Sons, Ltd., vol. 9(1), pages 59-83.
    7. Jonathan P. Thomas, 2001. "Default Costs, Willingness to Pay and Sovereign Debt Buybacks," International Finance 0103002, University Library of Munich, Germany.
    8. Viral Acharya & Itamar Drechsler & Philipp Schnabl, 2014. "A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk," Journal of Finance, American Finance Association, vol. 69(6), pages 2689-2739, December.
    9. Joshua Aizenman & Michael Gavin & Ricardo Hausmann, 2001. "Optimal tax and debt policy with endogenously imperfect creditworthiness," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 9(4), pages 367-395.
    10. Stephan Koren, 1992. "Debt relief for Eastern Europe — Its costs and the distribution of proceeds: Some preliminary results," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 128(4), pages 639-661, December.
    11. Thuraisamy, Kannan S. & Gannon, Gerard L. & Batten, Jonathan A., 2008. "The credit spread dynamics of Latin American euro issues in international bond markets," Journal of Multinational Financial Management, Elsevier, vol. 18(4), pages 328-345, October.
    12. Stephan Dieckmann & Michael Gallmeyer, 2006. "Pricing Rare Event Risk in Emerging Markets," 2006 Meeting Papers 305, Society for Economic Dynamics.
    13. Wiggers, Andreas, 2002. "Default-risky Sovereign Debt," Bonn Econ Discussion Papers 36/2002, University of Bonn, Bonn Graduate School of Economics (BGSE).
    14. Mr. Dale F Gray & Ms. Elena Loukoianova & Samuel W. Malone & Cheng Hoon Lim, 2008. "A Risk-Based Debt Sustainability Framework: Incorporating Balance Sheets and Uncertainty," IMF Working Papers 2008/040, International Monetary Fund.
    15. Jeremy I. Bulow & Kenneth Rogoff, 1988. "Sovereign Debt Restructurings: Panacea or Pangloss?," NBER Working Papers 2637, National Bureau of Economic Research, Inc.
    16. Jens Hilscher & Yves Nosbusch, 2010. "Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt," Review of Finance, European Finance Association, vol. 14(2), pages 235-262.
    17. Fabrice Collard & Michel Habib & Jean-Charles Rochet, 2015. "Sovereign Debt Sustainability In Advanced Economies," Journal of the European Economic Association, European Economic Association, vol. 13(3), pages 381-420, June.
    18. Janvier D. Nkurunziza, 2005. "Reputation and Credit without Collateral in Africa`s Formal Banking," Economics Series Working Papers WPS/2005-02, University of Oxford, Department of Economics.
    19. Gady Jacoby & Chuan Liao & Jonathan A. Batten, 2007. "A Pure Test for the Elasticity of Yield Spreads," The Institute for International Integration Studies Discussion Paper Series iiisdp195, IIIS.
    20. Gerardo Manzo & Antonio Picca, 2020. "The Impact of Sovereign Shocks," Management Science, INFORMS, vol. 66(7), pages 3113-3132, July.

    More about this item

    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:nbr:nberwo:2771. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.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.