Optimal Collective Action Clause Thresholds

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Abstract/Contents

Abstract: Major financial crises in the previous decade—Mexico in 1994, East Asia in 1997, and Russia in 1998—have drawn greater attention to the importance of organized sovereign debt resolution. Collective action clauses (CACs) are stipulations in bond contracts that allow for greater certainty and flexibility in the debt restructuring process in the event of a sovereign default. By allowing restructuring to occur without a unanimous vote by all bondholders and instead requiring a specific supermajority consensus, there is greater probability that restructuring can occur and the investors compensated. Previous literature has studied the consequences of CAC inclusion on borrowing costs. In contrast, this thesis examines the ex ante utility optimizing decision making process of sovereign borrowers as they decide the voting threshold in their CACs for bondholders’ approval of a restructuring. In addition, we empirically examine issuespecific characteristics, domestic economic conditions, and global and emerging market credit conditions to determine the factors that affect a sovereign’s decision to issue with a specific voting threshold.

Type of resource	text
Date created	May 2007

Author	Seki, Jenna
Primary advisor	Taylor, John B.
Degree granting institution	Stanford University, Department of Economics

Subject	Stanford Department of Economics
Subject	collective action clause
Subject	majority action clause
Subject	emerging market debt
Subject	sovereign debt
Subject	International Monetary Fund
Subject	Sovereign Debt Restructuring Mechanism
Genre	Thesis

Location	https://purl.stanford.edu/pq869sr9799

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Preferred Citation: Seki, Jenna. (2007). Optimal Collective Action Clause Thresholds . Stanford Digital Repository. Available at: https://purl.stanford.edu/pq869sr9799

Stanford University, Department of Economics, Honors Theses

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