This paper develops a framework for analyzing the impact of macroeconomic conditions on credit risk and dynamic capital structure choice. We begin by observing that when cash flows depend on current economic conditions, there will be a benefit for firms to adapt their default and financing policies to the position of the economy in the business cycle phase. We then demonstrate that this simple ...

This paper explores the interaction mechanism between asset price volatility and financial exposure by using prices of real estate and stock market. To this end, some dynamic econometric methods such as cointegration, IRF and so on are used to analyze the data based on Eviews software. Results show that inter-influences have been found between real estate prices and banking credit, with the for...

Federal law mandates the removal of personal bankruptcies from credit reports after 10 years. The removal’s effect is market efficiency in reverse. The short-term effect is a spurious boost in apparent creditworthiness, especially for the more creditworthy bankrupts, delivering a substantial increase in both credit scores and the number and aggregate limit of bank cards. The longer-term effect ...

We propose a multi-firm first-passage credit model in which investors have incomplete information. In this model, investors cannot observe a firm’s value process and its default barrier process. The model accounts for the short term risk inherent in default events, the market-wide impact of defaults on security prices due to counterparty relations between firms, and the cyclical default correla...

Indian capital controls impede foreign borrowing by corporations, and particularly short-term debt. In recent years, many Indian companies have become multinationals, which makes it possible for them to obtain short-term debt finance into offshore entities. This paper tests the extent to which Indian MNCs have greater exposure to global credit market conditions. The exposure of each firm to the...

Using a large data set on credit default swaps, we study how default risk interacts with interest-rate risk and liquidity risk to jointly determine the term structure of credit spreads. We classify the reference companies into two broad industry sectors, two broad credit rating classes, and two liquidity groups. We develop a class of dynamic term structure models that include (i) two benchmark ...

This paper explores the transmission of credit conditions into the real economy. Specifically, I examine the forecasting power of the term structure of credit spreads for future GDP growth. I find that the whole term structure of credit spreads has predictive power, even though the term structure of Treasury yields has none. Using a parsimonious macro-finance term structure model that captures ...

The results presented in this paper show that integrative financial and operating measures of liquidity provide investors and creditors with information beyond that provided by static measures of short-term liquidity such as the current and quick ratios. Using a sample of restaurant firms over the period 1994–2003, our analysis shows dynamic measures of liquidity provide a drastically different...

Financial instruments are one of the fundamental dimensions of financial markets that guarantee their efficiency and effectiveness of these markets. These instruments playe a main role in economy to direct money from saving sources to investment needs. These instruments provide possibility of financing companies from public and private sources and also are considered as investment instruments f...

I estimate a no-arbitrage model of the term structure of money market spreads during the financial crisis to attribute movements in spreads to credit and liquidity factors. The model restrictions imply that longer-term spreads are linear, risk-adjusted expectations of future short-term spreads. This linear representation of spreads can be partitioned into two components: one related to time-var...