Do collective action clauses raise borrowing costs?

Barry Eichengreen, Ashoka Mody

Research output: Contribution to journalArticlepeer-review

51 Scopus citations


We compare launch spreads on emerging-market bonds subject to UK governing law, which typically include collective action clauses, with spreads on bonds subject to US law, which do not. Collective-action clauses reduce the cost of borrowing for more creditworthy issuers, who appear to benefit from the ability to avail themselves of an orderly restructuring process. Less creditworthy issuers, in contrast, pay higher spreads. It appears that for less creditworthy borrowers the advantages of orderly restructuring are offset by the moral hazard and default risk associated with the presence of renegotiation-friendly loan provisions. We draw out the implications for the debate over whether to encourage the wider utilisation of these provisions as part of the effort to strengthen the international financial architecture.

Original languageEnglish (US)
Pages (from-to)247-264
Number of pages18
JournalEconomic Journal
Issue number495
StatePublished - Apr 2004
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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