TY - JOUR
T1 - Debt Concentration and Bargaining Power
T2 - Large banks, Small Banks, and Secondary Market Prices
AU - Fernández, 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.
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U2 - 10.1111/1468-2354.00018
DO - 10.1111/1468-2354.00018
M3 - Article
AN - SCOPUS:0345877017
SN - 0020-6598
VL - 40
SP - 333
EP - 355
JO - International Economic Review
JF - International Economic Review
IS - 2
ER -