The microstructure of the bond market suggests that private information could play a different role in the bond market than in the equity market. In particular, higher quality of private information can reduce the dealer power and estimation risk while having limited effect of increasing information asymmetry among mostly institutional investors. We show that while higher precision of public in...

Bayesian model averaging is applied to robustly ascertain the determinants of various output volatility measures, including the downside semideviation of growth rates. Financial sophistication variables are found to have qualitatively different effects on volatility. The ratio of government expenditure to GDP exhibited a significant positive relationship with volatility and the trade share of G...

Although a firm’s use of shorter-term debt can potentially help it to reduce agency costs of debt and align managers’ interests with those of shareholders, the use of this type of debt increases the firm’s refinancing risk. We hypothesize that firms with debt that has a shorter maturity hold larger cash reserves to reduce important costs they could incur if they have difficulty refinancing thei...

I test the market discipline of bank risk hypothesis by examining whether banks choose risk management policies that account for the risk preferences of subordinated debt holders. Using around 500,000 quarterly observations on the population of U.S. insured commercial banks over the 1995–2009 period, I document that the ratio of subordinated debt affects bank risk management decisions consisten...

A firm partially financed by debt is considered. The firm is subject to two types of shocks: macro-shocks modeled as a finite state Markov chain, and idiosyncratic shocks. The dynamics of the latter may depend on the state of the macroeconomy; the state of the economy is determined not only by fundamentals but the market sentiment as well. The lenders are competitive and debt is rolled over unt...

In this paper, we analyze whether the total debt ratios and bank loan ratios of Chinese listed companies had any impact on their fixed investment in 2001-2006, and whether this impact, if it existed, differed among companies with differing investment opportunities. Our results are as follows. First, our analysis reveals that the total debt ratio (bank loan ratio) did have a negative impact on f...

Over the past decade, 14 countries have undertaken a total of 18 debt restructurings. Concerns surrounding some of these restructurings have led policymakers and capital market participants to review their policies and practices on restructuring sovereign debt. in particular, court rulings as a result of litigation against Argentina have raised fears that a small minority of creditors could blo...

This paper analyzes the determinants of Italian households’ participation in the debt market, considering both demand and supply effects and using the Bank of Italy’s Survey of Household Income and Wealth. The probability of debt is positively influenced by age (until 35 years), which essentially acts as a demand factor. Among the economic variables, the role of income is important: it shows a ...

I integrate under firm-specific benefit functions to estimate that the capitalized tax benefit of debt equals 9.7 percent of firm value (or as low as 4.3 percent, net of personal taxes). The typical firm could double tax benefits by issuing debt until the marginal tax benefit begins to decline. I infer how aggressively a firm uses debt by observing the shape of its tax benefit function. Paradox...