scholarly journals Why do Sovereign Borrowers Post Collateral? Evidence from the 19th Century

2021 ◽  
Author(s):  
Marc Flandreau ◽  
◽  
Stefano Pietrosanti ◽  
Carlotta Schuster ◽  
◽  
...  
Keyword(s):  
Sovereign Debt ◽  
Stock Exchange ◽  
Primary Sources ◽  
Bond Yields ◽  
Sovereign Immunity ◽  
Fiscal Transparency ◽  
Sovereign Bond ◽  
Collateral Evidence ◽  
The Cost ◽  
The 19Th Century

This paper explores the reasons why sovereign borrowers post collateral. Such behavior is paradoxical because conventional interpretations of collateral stress repossession of the assets pledged as the key to securing lenders against information asymmetries and moral hazard. However, repossession is generally difficult in the case of sovereign debt and in some cases impossible. Nevertheless, such sovereign “hypothecations” have a long history and are again becoming very popular today in developing countries. To explain sovereign collateralization, we emphasize an informational channel. Posting collateral produces information on opaque borrowers by displaying borrowers’ behavior and resources. We support this interpretation by examining the hypothecation “mania” of 1849-1875, when sovereigns borrowing in the London Stock Exchange pledged all kinds of intangible revenues. Yet, at that time, sovereign immunity fully protected both sovereigns and their assets and possessions. Still, we show that hypothecations significantly decreased the cost of sovereign debt. To explain how, we stress the pledges’ role in documenting sovereigns’ wealth and the management of revenue streams. Based on an exhaustive library of bond prospectuses collected from primary sources, matched with a panel of sovereign bond yields and an innovative measure of sovereign fiscal transparency, we show that collateral minutely described in debt covenants served to document and monitor sovereign resources and development prospects. Encasing this information in contracts written by lawyers served to certify the quality of the resulting data disclosure process, explaining investors’ readiness to pay a premium.

scholarly journals The Impact of the Introduction of Uniform European Collective Action Clauses on European Government Bonds as a Regulatory Result of the European Sovereign Debt Crisis

2020 ◽  
Vol 14 (1) ◽  
pp. 1
Author(s):  
Nicoletta Layher ◽  
Eyden Samunderu
Keyword(s):  
European Union ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Sovereign Debt Crisis ◽  
The European Union ◽  
Bond Yields ◽  
Member States ◽  
Sovereign Bond ◽  
European Sovereign Debt Crisis ◽  
Collective Action Clauses

This paper conducts an empirical study on the inclusion of uniform European Collective Action Clauses (CACs) in sovereign bond contracts issued from member states of the European Union, introduced as a regulatory result of the European sovereign debt crisis. The study focuses on the reaction of sovereign bond yields from European Union member states with the inclusion of the new regulation in the European Union. A two-stage least squares regression analysis is adopted in order to determine the extent of impact effects of CACs on member states sovereign bond yields. Evidence is found that CACs in the European Union are priced on financial markets and that sovereign bond yields do respond to the inclusion of uniform CACs in the European Union.

scholarly journals Bond Yields, Sovereign Risk and Maturity Structure

Risks ◽  
2018 ◽  
Vol 6 (4) ◽  
pp. 109
Author(s):  
Marcos González-Fernández ◽  
Carmen González-Velasco
Keyword(s):  
Sovereign Debt ◽  
Inverse Relationship ◽  
Economic And Monetary Union ◽  
Sovereign Risk ◽  
Bond Yields ◽  
Sovereign Bond ◽  
Time Variance ◽  
Maturity Structure ◽  
The Relationship

The aim of this paper is to analyze the relation between maturity structure, sovereign bond yields and sovereign risk in the Economic and Monetary Union for the period of 1990–2013. The results confirm the existence of an inverse relationship between sovereign bond yields, sovereign risk and the maturity structure of sovereign debt, regardless of the proxy that is used to measure sovereign risk and the time variance of the variables employed. The results indicate that risk shortens the maturity structure of sovereign debt because it reduces the stock of long-term debt. The relationship between maturity structure and sovereign bond yields differs depending on the risk of the countries analyzed (non-monotonic relationship) and the differences between peripheral and core countries are greater for higher levels of the yields. If we control for the indebtedness level of these countries, the results show that the relationship between the sovereign bond yields and maturity strengthens as the debt level increases.

Fiscal transparency and the cost of sovereign debt

2016 ◽  
Vol 83 (1) ◽  
pp. 106-128 ◽  
Author(s):  
Francisco Bastida ◽  
María-Dolores Guillamón ◽  
Bernardino Benito
Keyword(s):  
Interest Rates ◽  
Public Management ◽  
Sovereign Debt ◽  
Credit Rating ◽  
Credit Ratings ◽  
Political Trust ◽  
Cost Of Debt ◽  
Budget Deficits ◽  
Fiscal Transparency ◽  
The Cost

This article analyses the factors that seem to play an important role in determining the cost of sovereign debt. Specifically, we evaluate to what extent transparency, the level of corruption, citizens’ trust in politicians and credit ratings affect interest rates. For that purpose, we create a transparency index matching the 2007 Organisation for Economic Co-operation and Development/World Bank Budgeting Database items with the Organisation for Economic Co-operation and Development Best Practices for Budget Transparency sections. We also check our assumptions with the International Budget Partnership’s Open Budget Index and with a non-linear transformation of our index. Furthermore, we use several control variables for a sample of 103 countries in the year 2008. Our results show that better fiscal transparency, political trust and credit ratings are connected with a lower cost of sovereign debt. Finally, as expected, higher corruption, budget deficits, current account deficits and unemployment make sovereign interest rates increase. Points for practitioners The key implications for professionals working in public management and administration are twofold. First, despite the criticism raised by credit ratings, it is clear that poorer ratings are connected with higher financing costs for governments. Therefore, governments should enhance those indicators that impact the credit rating of their sovereign debt. Second, governments should seek to be more transparent, since transparency reduces uncertainty about the degree of cheating, improves decision-making and therefore decreases the cost of debt. Transparency reduces information asymmetries between governments and financial markets, which, in turn, diminishes the spread requested by investors.

scholarly journals When Governments Promise to Prioritize Public Debt: Do Markets Care?

2020 ◽  
Vol 6 (1) ◽  
pp. 41-74
Author(s):  
Mitu Gulati ◽  
Ugo Panizza ◽  
W Mark C Weidemaier ◽  
Gracie Willingham
Keyword(s):  
Public Debt ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Sovereign Debt Crisis ◽  
Bond Yields ◽  
Borrowing Costs ◽  
Absolute Priority ◽  
Sovereign Bond ◽  
European Sovereign Debt Crisis ◽  
The Us

Abstract During the European sovereign debt crisis of 2011–13, some nations faced with rising borrowing costs adopted commitments to treat bondholders as priority claimants. That is, if there were a shortage of funds, bondholders would be paid first. In this article, we analyse the prevalence and variety of these types of commitments and ask whether they impact borrowing costs. We examine a reform that was widely touted at the height of the Euro sovereign debt crisis in 2011, in which Spain enshrined in its constitution a strong commitment to give absolute priority to public debt claimants. We find no evidence that this reform had any impact on Spanish sovereign bond yields. By contrast, our examination of the US Commonwealth of Puerto Rico suggests that constitutional priority promises can have an impact, at least where the borrower government is subject to supervening law and legal institutions.

On the Inflation Risks Embedded in Sovereign Bond Yields: A Revisit

2019 ◽  
Author(s):  
Gonzalo Camba-Mendez
Keyword(s):  
Bond Yields ◽  
Sovereign Bond

Real Money Investors and Sovereign Bond Yields

2013 ◽  
Author(s):  
Laura Jaramillo ◽  
Y. Sophia Zhang
Keyword(s):  
Bond Yields ◽  
Real Money ◽  
Sovereign Bond

The Cost of Consumer Collateral: Evidence from Bunching

2021 ◽  
Author(s):  
Benjamin Collier ◽  
Cameron Ellis ◽  
Benjamin J. Keys
Keyword(s):  
Collateral Evidence ◽  
The Cost

scholarly journals The Impact of CEOs' Compensations on Cost Stickiness in Industrial Companies Listed on the Amman Stock Exchange

2021 ◽  
Vol 15 (1) ◽  
pp. 152
Author(s):  
Lina Fuad Hussien
Keyword(s):  
Stock Exchange ◽  
Industrial Companies ◽  
Level Of Activity ◽  
Cost Behavior ◽  
Study Population ◽  
The Difference ◽  
High Level ◽  
The Cost ◽  
The Impact ◽  
Cost Stickiness

The purpose of this study is to analyze the asymmetry in cost behavior (cost stickiness) and to identify the impact of CEOs' compensation on the degree of cost stickiness behavior. The study population consists of the public shareholding companies listed on the ASE, which number (56) industrial company. Data were collected from (35) industrial companies for the period (2009 - 2019). To measure the degree of costs stickiness, The Model of Weiss (2010) was used. The Model of Weiss (2010) takes into account the costs and changes in the level of activity (sales) for the last four quarters of the company, Weiss (2010) model constructs the difference in logarithmic ratios of changes in cost. The study found that the CEO's compensation in Jordanian industrial companies consists of two forms. The companies pay fixed salaries or performance-related bonuses. The study found that the form of compensation that is paid to the CEO affects the behavior of managers. The results indicated that the performance-related rewards are accompanied by a decrease in the level of cost stickiness, and the compensation paid in the form of fixed salaries are accompanied by a high level of cost stickiness. The study recommends that companies should understand the role of the compensation form in administrative decisions, especially with regard to resource modifications, as management motives in relation to resource modifications must be taken into account because of their clear and direct impact on the cost structure of companies.

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