Have Commercial Banks Ignored History?

Abstract

This paper investigates the impact of past defaults. and of recently acquired sovereignty on the terms of bank loans for developing countries in the 1970s. We control for countries' repayment indicators and for a measure of their political stability. Our findings are that: 1) The repayment difficulties of the period prior to the 1930s do not have a statistically significant impact on the credit terms. In contrast. the defaults of the 1930s and the post war defaults and repayment difficulties do have a statistically significant impact on credit terms. These findings are in contrast to those studies that focused on crises periods in these markets. Our results suggest that countries' repayment behavior influence their later market access. 2) Nations that achieved sovereignty recently were charged higher rates than nations that were sovereign before the 1940s. In fact. recently sovereign borrowers were charged as high rates as the defaulters of the former episodes. This finding suggests that markets attach risk premium for new institutions.

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