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| Author: | Bowe, M. Dean, J. |
| Title: | Debt-equity swaps: investment incentive effects and secondary market prices |
| Journal: | Oxford Economic Papers
1993 : JAN, VOL. 45, p. 130-147 |
| Index terms: | DEBT-EQUITY SWAPS INVESTMENT INCENTIVES PRICE CONTROL |
| Language: | eng |
| Abstract: | This paper analyses the investment incentives associated with a debt-equity swap programme. Swaps increase debtor nations' incentives to commit capital to investments with a positive net present value. A necessary condition for mutually beneficial swaps is derived which, unlike alternative models, is independent of the risk attitudes of swap market participants. Two results follow. First, debtors will swap a maximum proportion of equity in an investment project with foreign creditors. Second, creditors require a minimum price of equity in terms of debt to participate in the swap. The swap's effects on the secondary market price of debt are examined. |
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