The Costs of Sovereign Default: Evidence from Argentina
Benjamin Hébert, Jesse Schreger
American Economic Review · 2017 · Volume 107 · Issue 10
Abstract
We estimate the causal effect of sovereign default on the equity returns of Argentine firms. We identify this effect by exploiting changes in the probability of Argentine sovereign default induced by legal rulings in the case of NML Capital, Ltd. v. Republic of Argentina. We find that a 10 percent increase in the probability of default causes a 6 percent decline in the value of Argentine equities and a 1 percent depreciation of a measure of the exchange rate. We examine the channels through which a sovereign default may affect the economy.
Keywords
Firm Behavior: Empirical Analysis, Foreign Exchange, International Lending and Debt Problems, Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill, Industrialization, Manufacturing and Service Industries, Choice of Technology, Economic Development: Financial Markets, Saving and Capital Investment, Corporate Finance and Governance, International Linkages to Development, Role of International Organizations
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