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Corporate Debt (corporate + debt)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting87%

Selected Abstracts

Financial Frictions and Risky Corporate Debt

ECONOMIC NOTES, Issue 1 2007
Doriana Ruffino
We offer clarifications on Cooley and Quadrini (2001) regarding financial frictions and risky corporate debt pricing. Even in a frictionless world, the promised rate on corporate debt is not identical across firms and across capital structures and it is not equal to the risk-free rate. Frictions are unnecessary for credit spreads to arise. Only if the macroeconomy is in actuality risk free or risk neutral do interest rates on corporate debt reflect default probabilities. To the extent that the firm's entire financial structure is traded, a bias in credit spreads introduces an exploitable arbitrage opportunity. Re-establishing no-arbitrage, firm dynamics move in the opposite direction to Cooley and Quadrini's. [source]

Corporate Sell-offs in the UK: Use of Proceeds, Financial Distress and Long-run Impact on Shareholder Wealth

EUROPEAN FINANCIAL MANAGEMENT, Issue 2 2008
Edward Lee
G34 Abstract This study examines the long-run return performance following UK corporate sell-off announcements. We observe significant negative abnormal returns up to five years subsequent to sell-off announcements. Our finding is robust to various specifications, irrespective of the intended use of proceeds. We also find a significantly positive association between long-run abnormal returns and the magnitude of cash proceeds for sellers reducing corporate debt as well as for sellers with deeper financial distress or higher growth prospects. Overall, we find that UK corporate sell-offs are associated with declines in subsequent shareholder wealth. [source]

Corporate Debt Issuance and the Historical Level of Interest Rates

FINANCIAL MANAGEMENT, Issue 3 2008
Christopher B. Barry
Using a sample that comprises more than 14,000 new issues of corporate debt for the period 1970-2001, we examine the relation between debt issues and the level of interest rates relative to historical levels. Consistent with recent survey evidence, we find that companies issue more debt, more debt relative to investment spending, and more debt compared to equity when interest rates are low relative to historical rates. The effects continue to hold when we control for other variables that influence debt issuance and when we account for refinancing. [source]

Floating without flotations,the exchange rate and the Mexican stock market: 1995,2001

JOURNAL OF INTERNATIONAL DEVELOPMENT, Issue 3 2006
Jesús Muńoz
Abstract Pegged exchange rates in capital importing countries partially ,socialised' the risks of international borrowing. A corollary of managed floating, therefore, is a reallocation of risk bearing to private capital markets. Equity finance offers explicit risk sharing but Mexican experience since 1995 confirms that it may not expand spontaneously under a floating regime, despite buoyant international conditions. As an explanation for this disappointing outcome, the analysis highlights the implications of managed floating for equity demand when corporate debt is high. Policy must recognize that while firms need to reduce gearing, investors may not be attracted to the shares of indebted companies. Copyright © 2006 John Wiley & Sons, Ltd. [source]

PRICING EQUITY DERIVATIVES SUBJECT TO BANKRUPTCY

MATHEMATICAL FINANCE, Issue 2 2006
Vadim Linetsky
We solve in closed form a parsimonious extension of the Black,Scholes,Merton model with bankruptcy where the hazard rate of bankruptcy is a negative power of the stock price. Combining a scale change and a measure change, the model dynamics is reduced to a linear stochastic differential equation whose solution is a diffusion process that plays a central role in the pricing of Asian options. The solution is in the form of a spectral expansion associated with the diffusion infinitesimal generator. The latter is closely related to the Schrödinger operator with Morse potential. Pricing formulas for both corporate bonds and stock options are obtained in closed form. Term credit spreads on corporate bonds and implied volatility skews of stock options are closely linked in this model, with parameters of the hazard rate specification controlling both the shape of the term structure of credit spreads and the slope of the implied volatility skew. Our analytical formulas are easy to implement and should prove useful to researchers and practitioners in corporate debt and equity derivatives markets. [source]

Sovereign Liquidity Crises: The Strategic Case For a Payments Standstill

THE ECONOMIC JOURNAL, Issue 460 2000
Marcus Miller
Is sovereign borrowing so different from corporate debt that there is no need for bankruptcy-style procedures to protect debtors? With the waiver of immunity, sovereign debtors who already face severe disruption from short-term creditors grabbing their currency reserves are also exposed to litigious creditors trying to seize what assets they can in a ,race of the vultures'. The lack of an orderly procedure for resolving sovereign liquidity crises means that the IMF is de facto forced to bail out countries in trouble. The strategic case for legalising standstills is to rescue the international financial system from this ,time consistency' trap. [source]

THE SYSTEMATIC RISK OF DEBT: AUSTRALIAN EVIDENCE,

AUSTRALIAN ECONOMIC PAPERS, Issue 1 2005
KEVIN DAVISArticle first published online: 21 FEB 200
This paper examines systematic risk (betas) of Australian government debt securities for the period 1979,2004 and makes three contributions to academic research and practical debate. First, the empirical work provides direct evidence on the systematic risk of government debt, and provides a benchmark for estimating the systematic risk of corporate debt which is relevant for cost of capital estimation and for optimal portfolio selection by asset managers such as superannuation funds. Second, analysis of reasons for non-zero (and time varying) betas for fixed income securities aids understanding of the primary sources of systematic risk. Third, the results cast light on the appropriate choice of maturity of risk free interest rate for use in the Capital Asset Pricing Model and have implications for the current applicability of historical estimates of the market risk premium. Debt betas are found to be, on average, significantly positive and (as expected) closely related, cross sectionally, to duration. They are, however, subject to significant time series variation, and over the past few years the pre-existing positive correlation between bond and stock returns appears to have vanished. [source]