Asymmetric information, dynamic debt issuance, and the term structure of credit spreads

Arbeitspapier

We propose a tractable model of a firm's dynamic debt and equity issuance policies in the presence of asymmetric information. Because "investment-grade" firms can access debt markets, managers who observe a bad private signal can both conceal this information and shield shareholders from infusing capital into the firm by issuing new debt to service existing debt, thus avoiding default. The implication is that the "asymmetric information channel" can generate jumps to default (from the creditors' perspective) only for those "high-yield" firms that have exhausted their ability to borrow. Thus, our model deepens the "credit spread puzzle" for investment-grade firms.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Working Paper ; No. 2019-08

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Bankruptcy; Liquidation
• Thema: Credit spreads ; Capital structure ; Corporate Default ; Jumps to Default

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Benzoni, Luca ; Garlappi, Lorenzo ; Goldstein, Robert S.
• Ereignis: Veröffentlichung
• (wer): Federal Reserve Bank of Chicago
• (wo): Chicago, IL
• (wann): 2019

Weitere Informationen

• DOI: doi:10.21033/wp-2019-08
• Handle: http://hdl.handle.net/10419/230374
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ