Investment - Based Corporate Bond Pricing ∗
نویسنده
چکیده
A standard assumption of structural models of default is that firms assets evolve exogenously. In this paper, we document the importance of accounting for investment options in models of credit risk. In the presence of financing and investment frictions, firm-level variables which proxy for asset composition carry explanatory power for credit spreads beyond leverage. As a result, cross-sectional studies of credit spreads that fail to control for the interdependence of leverage and investment decisions are unlikely to be very informative. Such frictions also give rise to a realistic term structure of credit spreads in a production economy. JEL Classification: E22, E44, G12, G31, G32, G33.
منابع مشابه
Internet Appendix to “ Investment - Based Corporate Bond Pricing ” LARS - ALEXANDER KUEHN and LUKAS SCHMID
In this Internet Appendix, we provide further evidence on the determinants of corporate credit spreads and default risk through the lens of our investment-based model. Following the approach adopted in the main text, we present results from simulations of various calibrated model specifications. Unless otherwise noted, parameter values correspond to the baseline calibration in the main text. Se...
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