NBER

Péter Benczúr

European Commission
JRC Joint Research Centre
Via E. Fermi, 2749, I-21027 Ispra (VA), ITALY

E-Mail: peter.benczur@ec.europa.eu
Institutional Affiliation: Joint Research Centre

NBER Working Papers and Publications

August 2014Evidence for Relational Contracts in Sovereign Bank Lending
with Cosmin L. Ilut: w20391
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 ...

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

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