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Evidence for Relational Contracts in Sovereign Bank Lending / Peter Benczur, Cosmin L. Ilut.
- Format:
- Book
- Author/Creator:
- Benczur, Peter.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w20391.
- NBER working paper series no. w20391
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2014.
- Summary:
- This paper presents direct evidence for relational contracts in sovereign bank lending. Unlike the existing empirical literature, its instrumental variables method allows for distinguishing a direct influence of past repayment problems on current spreads (a "punishment" effect in prices) from an indirect effect through higher expected future default probabilities ("loss of reputation"). Such a punishment provides positive surplus to lenders after a default and decreases the borrower's present discounted value of the net benefits of future borrowing, which create dynamic incentives. Using data on bank loans to developing countries between 1973-1981 and constructing continuous variables for credit history, we find evidence that most of the influence of past repayment problems is through the direct, punishment channel.
- Notes:
- Print version record
- August 2014.
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