Debt Concentration and Bargaining Power: Large banks, Small Banks, and Secondary Market Prices

Raquel Fernandez, Şule Özler

    Research output: Contribution to journalArticle

    Abstract

    Commercial bank debts of developing countries are held by large international banks and smaller domestic banks. This paper investigates how debt concentration - the proportion of a country's debt held by large banks relative to small banks - affects the secondary market price for these loans. We find that countries with higher concentrations have higher secondary-market prices. We explain this empirical finding in a bargaining model that endogenizes the maximum penalty that banks can credibly impose on a recalcitrant debtor. We show that the banks' bargaining power increases with the degree of debt concentration, thus increasing repayment and secondary-market prices.

    Original languageEnglish (US)
    Pages (from-to)333-355
    Number of pages23
    JournalInternational Economic Review
    Volume40
    Issue number2
    StatePublished - May 1999

    Fingerprint

    Bargaining power
    Market price
    Secondary market
    Debt
    Loans
    Bargaining model
    Commercial banks
    Proportion
    Penalty
    Developing countries
    Bank debt

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Debt Concentration and Bargaining Power : Large banks, Small Banks, and Secondary Market Prices. / Fernandez, Raquel; Özler, Şule.

    In: International Economic Review, Vol. 40, No. 2, 05.1999, p. 333-355.

    Research output: Contribution to journalArticle

    @article{725f4f8b2c364880bed2f311b2fe2932,
    title = "Debt Concentration and Bargaining Power: Large banks, Small Banks, and Secondary Market Prices",
    abstract = "Commercial bank debts of developing countries are held by large international banks and smaller domestic banks. This paper investigates how debt concentration - the proportion of a country's debt held by large banks relative to small banks - affects the secondary market price for these loans. We find that countries with higher concentrations have higher secondary-market prices. We explain this empirical finding in a bargaining model that endogenizes the maximum penalty that banks can credibly impose on a recalcitrant debtor. We show that the banks' bargaining power increases with the degree of debt concentration, thus increasing repayment and secondary-market prices.",
    author = "Raquel Fernandez and Şule {\"O}zler",
    year = "1999",
    month = "5",
    language = "English (US)",
    volume = "40",
    pages = "333--355",
    journal = "International Economic Review",
    issn = "0020-6598",
    publisher = "Wiley-Blackwell",
    number = "2",

    }

    TY - JOUR

    T1 - Debt Concentration and Bargaining Power

    T2 - Large banks, Small Banks, and Secondary Market Prices

    AU - Fernandez, Raquel

    AU - Özler, Şule

    PY - 1999/5

    Y1 - 1999/5

    N2 - Commercial bank debts of developing countries are held by large international banks and smaller domestic banks. This paper investigates how debt concentration - the proportion of a country's debt held by large banks relative to small banks - affects the secondary market price for these loans. We find that countries with higher concentrations have higher secondary-market prices. We explain this empirical finding in a bargaining model that endogenizes the maximum penalty that banks can credibly impose on a recalcitrant debtor. We show that the banks' bargaining power increases with the degree of debt concentration, thus increasing repayment and secondary-market prices.

    AB - Commercial bank debts of developing countries are held by large international banks and smaller domestic banks. This paper investigates how debt concentration - the proportion of a country's debt held by large banks relative to small banks - affects the secondary market price for these loans. We find that countries with higher concentrations have higher secondary-market prices. We explain this empirical finding in a bargaining model that endogenizes the maximum penalty that banks can credibly impose on a recalcitrant debtor. We show that the banks' bargaining power increases with the degree of debt concentration, thus increasing repayment and secondary-market prices.

    UR - http://www.scopus.com/inward/record.url?scp=0345877017&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=0345877017&partnerID=8YFLogxK

    M3 - Article

    AN - SCOPUS:0345877017

    VL - 40

    SP - 333

    EP - 355

    JO - International Economic Review

    JF - International Economic Review

    SN - 0020-6598

    IS - 2

    ER -