Multilateral Debt Relief through the Eyes of Financial Markets
The economic benefits of debt relief for recipient countries have been the subject of arduous debate, at least partly motivated by the difficulty of identifying the causal effect of debt relief on economic performance-given that performance itself...
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| Language: | English |
| Published: |
2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090323094828 http://hdl.handle.net/10986/4067 |
| Summary: | The economic benefits of debt relief for
recipient countries have been the subject of arduous debate,
at least partly motivated by the difficulty of identifying
the causal effect of debt relief on economic
performance-given that performance itself may drive the
decision to grant relief. This paper conducts an event study
to assess the economic consequences of multilateral debt
relief for recipient countries that is robust to these
reverse causality issues. It estimates the response of the
stock prices of South African multinationals with
subsidiaries in those countries to the announcement of debt
relief initiatives, and shows that stock prices exhibit a
significant increase above those of other firms, especially
around the launching of the recent Multilateral Debt Relief
Initiative. The improvement in financial markets'
assessment of the value of these multinationals is
consistent with lower expected levels of future taxation in
the recipient countries. Overall, the results are consistent
with the "debt overhang" argument for debt relief. |
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