Review of Financial Studies Vol. 34 No. 12 2021

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

Elena Carletti¹; Paolo Colla²; Mitu Gulati³; Steven Ongena⁴

¹ Bocconi University and CEPR · ² Bocconi University · ³ Duke University · ⁴ University of Zurich, Swiss Finance Institute, KU Leuven, and CEPR

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.

DOI

10.1093/rfs/hhaa140

Volume

34

Issue

12

Pages

5933-5976

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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