Tanaka, Takanori—Corporate governance and the cost of public debt financing: Evidence from Japan This paper explores the relationship between corporate governance mechanisms and the cost of public debt financing in Japan. Using a sample of corporate bonds newly issued in Japan during the period 2005–2008, I find that CEO ownership is associated with higher yield spreads after controlling for ot...

This paper considers the macroeconomic effects of allowing for nominal debt contracts in the context of a quantitative business cycle model with financial market frictions. In our setting, as in reality, corporations fund themselves by choosing the appropriate mix of nominal defaultable debt and equity securities to issue in every period. Corporate debt is priced fairly taking into account defa...

I examine the corporate bond market reaction to bond rating changes using newly available corporate bond transaction data from the over-the-counter (OTC) market. I document significant price responses to both downgrades and upgrades in the in two-day period surrounding announcements. Since numerous studies find no evidence of a stock price reaction do upgrades, my findings adds to the literatur...

We explore the rating system used by credit agencies with a focus on problems that justify the use of fuzzy set theory. We prove that a fuzzy market is viable if and only if an equivalent martingale measure exists, from which we construct the forward probability measure and under which the discounted price of a default-free bond is a martingale. We model the evolution of credit migration of a d...

ABSTRACT In the credit risk modeling literature, there are two different viewpoints towards the structural model of Merton. Many empirical tests show that the Merton model overestimates corporate bond prices substantially. However, there are other empirical works defensing that the Merton model is useful in predicting default and performs well in estimating deposit insurance fund. In this paper...

We identify and estimate the sources of risk that cause corporate bonds to earn an excess return over default-free bonds. In particular, we estimate the risk premium associated with a default event. Default is modelled using a jump process with stochastic intensity. For a large set of firms, we model the default intensity of each firm as a function of common and firm-specific factors. In the mo...

This paper develops a corporate bond valuation model that incorporates a default barrier with dynamics depending on stochastic interest rates and variance of the corporate bond function. The volatility of the firm value affects the level of the barrier over time through the variance of the corporate bond function and its contribution to the barrier's dynamics is adjusted by a free parameter. We...

I extract credit pricing information from the prices of callable corporate debt, by disentangling the components of callable corporate bond prices associated with discounting at market interest rates, discounting for default risk, and optionality. The results include the first empirical analysis, in the setting of standard arbitrage-free term-structure models, of the time-series behavior of cal...

The global financial crisis had detrimental consequences for banks’ balance sheets, as well as for their funding costs and profitability, thus weighing negatively on their ability to supply new loans. As a result, banks tightened credit standards for all borrowers, including non-financial corporations. The restricted access to bank funding for the corporate sector induced the latter to seek oth...