This paper investigates whether information asymmetry affects corporate bond credit spreads. To gauge the extent of information asymmetry, we use decomposed equity institutional ownership based on the past investment and trading styles (Bushee(1998, 2001)). First, we detect that different institutional groups are associated with firms with varying degrees of information asymmetry. Moreover, we ...

The purpose of this paper is to examine the role of reputation in the matching of underwriters and issuing firms in the straight corporate bond market in Japan. While the existing literature already investigates how the issuing firm chooses its underwriter at the time of issue, this paper uses initial and seasoned issues of straight corporate bonds to examine how the matching of underwriters an...

We analyze monetary conditions in US asset markets — corporate equity, real estate, Treasury bond and corporate & foreign bond — from a market specific perspective, proposing the concept of market leverage. Market leverage measures the average leverage of all asset holders in a particular asset market. The concept builds on an accountingbased network that links balance sheet leverages of asset ...

This study develops a semi-structural framework of bond pricing that incorporates default risk, taxes, and bond rating transition, whereas prior papers have primarily focused on the first (and more recently the second) factor. After capturing the three effects, the remaining spread between corporate bond rates and risk free rates can intuitively be attributed to liquidity. Models estimated with...

If there is an unobserved component in corporate default intensities, then part of the fluctuation in corporate bond prices can be attributed to the variation in beliefs about this latent factor over time. Using sequential Markov Chain Monte Carlo techniques, we show evidence of a latent frailty process in the default intensities in U.S. corporate defaults. The factor is robust to the inclusion...

Agency theory posits that debt-like compensation (such as defined-benefit pensions and other deferred compensation) aligns managerial interests more closely with those of debtholders and reduces the agency cost of debt. Consistent with theory, we find that a higher CEO relative leverage, defined as the ratio of the CEO's inside leverage (debt-toequity compensation) to corporate leverage, is ass...

We examine the default probabilities predicted by “structural” models of risky corporate debt. Two types of models are examined: those with “exogenous” default boundaries, typified by Longstaff and Schwartz (1995); and those with “endogenous” default boundaries, typified by Leland and Toft (1996). We focus on default probabilities rather than credit spreads because (i) they are not affected by ...

Credit markets play an important role in the macroeconomy and credit market data is often used to predict both future macroeconomic and stock market performance. In this paper we propose a tractable general equilibrium asset pricing model with heterogeneous firms that links movements in stock and bond markets to macroeconomic activity. The model suggests that movements in risk premia in corpora...