NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Evidence for Relational Contracts in Sovereign Bank Lending

Peter Benczur, Cosmin L. Ilut

NBER Working Paper No. 20391
Issued in August 2014
NBER Program(s):Asset Pricing, Economic Fluctuations and Growth, International Finance and Macroeconomics

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.

download in pdf format
   (332 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20391

Published: Péter Benczúr & Cosmin L. Ilut, 2016. "EVIDENCE FOR RELATIONAL CONTRACTS IN SOVEREIGN BANK LENDING," Journal of the European Economic Association, vol 14(2), pages 375-404. citation courtesy of

Users who downloaded this paper also downloaded* these:
Foster, Grim, and Haltiwanger w20427 Reallocation in the Great Recession: Cleansing or Not?
Acemoglu, Autor, Dorn, Hanson, and Price w20395 Import Competition and the Great U.S. Employment Sag of the 2000s
Barth, Bryson, Davis, and Freeman w20447 It's Where You Work: Increases in Earnings Dispersion across Establishments and Individuals in the U.S.
Bianchi, Ilut, and Schneider w20081 Uncertainty Shocks, Asset Supply and Pricing over the Business Cycle
Hansen w20394 Uncertainty Outside and Inside Economic Models
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us