Suchergebnisse

We propose a novel theory to explain why sovereigns borrow on both domestic and international markets and why defaults are mostly selective (on either domestic or foreign investors). Domestic debt issuance can only smooth tax distortion shocks, whereas foreign debt can also smooth productivity shocks. If the correlation of these shocks is sufficiently low, the sovereign borrows on both markets to avoid excess consumption volatility. Defaults on both types of investors arise in equilibrium due to market incompleteness and the government's limited commitment. The model matches business cycle moments and frequencies of different types of defaults in emerging economies and we show our hypothesis is confirmed by the data. We also find that secondary markets are not a sufficient condition to avoid sovereign defaults. The outcome of the trade in bonds on secondary markets depends on how well each group of investors can coordinate their actions.

Do turnover and distributive partisan motivations affect government borrowing more so than traditional funding sources like taxes and transfers? Electoral competition between a variety of parties is critically important for the health of a democratic regime. However, there is an inherent tension between government electoral responsiveness and policy stability. Competing party platforms can have radically different views when it comes to governance, and state institutions need time to meld to the priorities of a new government while maintaining their structural integrity. This tension co-exists with the fact that fiscal strains on governments have risen with growing expectations by citizens of the public sector's responsibilities. These responsibilities can broadly be financed by taxing constituents, borrowing capital, or receiving transfers in the case of subnational governments. Given the lower short-term political costs of debt versus new taxes, the political leaders who manage these public finances may have incentives to borrow, especially when high turnover means their time horizon in office is short or party bases vulnerable to clientelism make cheap capital valuable. Contrary to this assumption, using a regression discontinuity analyzing Mexican mayors who won close elections, I do not find evidence that electoral turnover or partisan motivations affect debt funding. However, I do find support for prior scholarship suggesting partisan motivations in transfers to local governments. These results carry important implications for our understanding of the stability effects of electoral turnover, how parties finance distributive politics, and the fiscal effects of intergovernmental partisan alignment.

This paper investigates the determinants and their factors that affect governments' decision to employ sovereign Sukuk over conventional bonds; the research is based on a sample of 143 Sukuk and 602 conventional sovereign bonds issued in 16 OIC countries from 2000 to 2015. The results depict that more nations that have developed financial markets, higher credit quality, and strong economic/financial prospects, issue sovereign Sukuk rather than sovereign conventional bonds. Dealing with Sukuk bonds can be a strategy to diversify and develop current debt markets by introducing newly-developed debt tools. However, less economically developed nations countries are typically issuing insurance for classic sovereign bonds. Our findings suggest that a government's choice of sovereign debt is influenced mainly from national financial and macroeconomic indicators, as well as specific events.Countries with developed financial markets, strong economic indicators, high credit quality, and sustainable financial position are more likely to issue sovereign Sukuk rather than sovereign bonds as a strategy to develop and diversify their financial markets by promoting new debt products.

Related Content: Liu, Moldogaziev, and Mikesell (PAR September/October 2017)

We compare valuation effects associated with debt issuance under SEC Rule 144A versus issuance in the public market. We find that nonconvertible debt Rule 144A issuers experience an incremental positive announcement effect when compared to their counterparts issuing in the public market. We attribute this to the timing of issuance under favorable market conditions and a reduction in informational asymmetry due to lender specialization. When compared to their public counterparts, convertible Rule 144A bond issuers often experience negative announcement effects and inferior post-issuance stock performance. We argue that this negative market reaction arises from a stronger opportunistic market-timing signal.

A letter report issued by the General Accounting Office with an abstract that begins "In connection with fulfilling our requirement to audit the financial statements of the U.S. government, we audit the Schedules of Federal Debt Managed by the Bureau of the Public Debt, which includes testing compliance with the debt ceiling. To assist us in this testing and because of the nature of and sensitivity towards actions taken during a debt issuance suspension period, we (1) developed a chronology of significant events, (2) analyzed the financial aspects of Treasury's actions taken during the debt issuance suspension periods and assessed the legal basis of these actions, and (3) analyzed the impact of the policies and procedures used by Treasury to manage the debt during the debt issuance suspension periods."