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The Price of Law: The Case of the Eurozone Collective Action Clauses


Carletti, Elena; Colla, Paolo; Gulati, Mitu G; Ongena, Steven (2020). The Price of Law: The Case of the Eurozone Collective Action Clauses. Duke Law School Public Law & Legal Theory Series 2020-73, University of Zurich.

Abstract

We analyze the price effect of the introduction of Collective Action Clauses (CACs) in all 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. The results suggest that CACs are seen as pro- rather than anti-creditor provisions.

Abstract

We analyze the price effect of the introduction of Collective Action Clauses (CACs) in all 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. The results suggest that CACs are seen as pro- rather than anti-creditor provisions.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:1 October 2020
Deposited On:04 Dec 2020 07:59
Last Modified:05 Dec 2020 04:37
Series Name:Duke Law School Public Law & Legal Theory Series
OA Status:Green
Free access at:Official URL. An embargo period may apply.
Official URL:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2817041
Other Identification Number:merlin-id:19846

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