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If Boilerplate Could Talk: The Work of Standard Terms in Sovereign Bond Contracts

Published online by Cambridge University Press:  05 April 2019

Anna Gelpern ,
Mitu Gulati  and
Jeromin Zettelmeyer
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Abstract

Standard contract terms are “sticky”: they rarely change, even if change appears to be in the parties’ interest. Multiple theories to explain stickiness do not reach consensus on its causes. We investigate the role of stickiness in sovereign bond contracts, where it would be especially costly and therefore puzzling. In our interviews with more than a 100 officials responsible for the bond contracts of twenty-eight countries, they linked reluctance to change non-financial contract terms and the imperative of following a “market standard” for such terms. When a term could be described as standard for the government’s debt stock or borrower cohort, its content often came across as secondary. Sovereign debt managers seemed willing to forgo some of the benefits of contract terms for dealing with contingencies and revealing private information to avoid negative signals and maintain the liquidity of primary and secondary debt markets. Interviews with investors suggested a similar focus on standard form and a limited engagement with contract substance.

Type
Articles
Information
Law & Social Inquiry , Volume 44 , Issue 3 , August 2019 , pp. 617 - 646
Copyright
© 2019 American Bar Foundation 

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Footnotes

We owe deep thanks to commentators and participants in conferences and workshops where we presented this research, including Georgetown Law, the University of Glasgow, the University of North Carolina at Chapel Hill, the University of Chicago Booth School of Business, the Federal Reserve Bank of Chicago, the Graduate Institute (Geneva), the University of Texas at Austin School of Law, Washington University School of Law-St. Louis, and Northwestern University, to our home institutions for supporting our travel to far-flung debt offices, to several generations of research assistants, and to the five anonymous reviewers who, along with Willa Sachs, gave us superb comments. Above all, this article would not exist but for the extraordinary generosity of its protagonists, public officials and market participants.

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