We analyze whether the diversification discount is driven by the book value bias of corporate debt. Book values of debt may be a more downward biased proxy of the market value of debt for diversified firms, relative to undiversified firms, as diversification leads to lower firm risk. Thus, measures of firm value based on book values of debt undervalue diversified firms relative to focused firms...

a r t i c l e i n f o Keywords: Estimation of term structure of interest rate Financial reforms Latent factor extraction Level Monetary policy Yield curve movements The article identifies principal reasons underlying the movements of yield curve for government debt market in India for the period Jul '97 to Dec '11. The study finds that though statistically Svensson's (SV) (1994) model outperfor...

This paper examines the optimal priority structure and mix of bank and bond market debt within a continuous-time asset pricing framework. Closed-form expressions are derived for the values of renegotiable bank debt, non-renegotiable bond market debt, equity, and levered firm values. We show that the optimal debt structure hinges upon the ex post division of bargaining power between the firm and...

Using micro-level data from the mortgage market, we examine yield spreads as a funnction of both credit risk and prepayment risk using a two-stage instrumental variable approach. Our results are consistent with findings in the finance literature that leverageinduced financial risk reflected in capital structure results in higher yield spreads on debt. In particular, borrowers with loan-to-value...

Recently much attention has been given to the idea of reducing the debt of developing countries through a "menu approach" of schemes that attempt to harness the discounts on debt in the secondary market. This paper, after reviewing the rationale for the orthodox strategy of concerted lending and the case for debt forgiveness, examines the logic behind several market-based debt reduction schemes...

A major investor in private debt market is life insurance companies. They have long-term, fixed-rate liabilities that are matched by private debt investment. Life insurance companies, as the lenders in the private debt market, have the ability to evaluate the credit quality of borrowers and to perform ongoing risk monitoring. In this study we examine the determinants of private debt holdings fo...

T paper documents that excess inventory announcements, an indication of demand-supply mismatch, are associated with an economically and statistically significant negative stock market reaction. The results are based on a sample of 276 excess inventory announcements made during 1990–2002. Over a two-day period (the day of the announcement and the day before the announcement) the mean (median) st...

This paper discusses the issues and dilemmas faced in the development of the debt market in India. After narrating the country context, the profile of the debt market in terms of outstanding issues, instruments and participants is highlighted along with the institutional arrangements. This is followed by an articulation of the broad objectives of development of financial markets by the Reserve ...

We examine the optimal mixture and priority structure of bank and market debt using a trade-off model in which banks have the unique ability to renegotiate outside formal bankruptcy. Flexible bank debt offers a superior trade-off between tax shields and bankruptcy costs. Ease of renegotiation limits bank debt capacity, however. Optimal debt structure hinges upon which party has bargaining power...