The majority of enterprises in China are controlled by local governments at the provincial, city, county, township and village levels. We study the effect of regional decentralization on soft budget constraints in these enterprises. We show that fiscal competition under (foreign) capital...

This Paper surveys the theoretical literature on the effect of soft budget constraints (SBC) on economies in transition from centralization to capitalism; it also reviews our understanding of SBC in general. It focuses on the conception of the SBC syndrome as a commitment problem. We show that...

This paper analyzes the consequences of bank diversification into fee-based businesses. Universal banks raise welfare by expanding the range of services available to entrepreneurs. However, because they may choose to rescue failed entrepreneurs in order to sell them fee-based financial services,...

When Argentine sovereign default in December 2001 led to a collapse of the peso, the burden of dollar debt became demonstrably unsustainable. But it was not clear what restructuring was feasible, nor when. Eventually, in 2005 after a delay of more than three years, a supermajority of creditors...

This paper examines whether reducing a debt overhang improves borrowers' operating performance using a sample of distressed and highly overleveraged Austrian ski hotels undergoing debt restructurings. The vast majority of the ski hotels experience substantial debt forgiveness, resulting in...

Within the next few months, the Greek government, is supposed to persuade private creditors holding about EUR 200bn in its bonds to voluntarily exchange their existing bonds for new bonds that pay roughly 50 percent less. This may work with large creditors whose failure to participate in a debt...

The Greek debt restructuring of 2012 stands out in the history of sovereign defaults. It achieved very large debt relief – over 50 per cent of 2012 GDP – with minimal financial disruption, using a combination of new legal techniques, exceptionally large cash incentives, and official sector...

We present a pricing model for secondary market debt designed to assess the impact of debt reduction on valuation of remaining claims and to value guarantees in various forms. The technique used, option pricing, accounts explicitly for the sources and natures of risks on secondary market pricing...