Market Imperfections, Investment Flexibility, and Default Spreads
This paper develops a structural model that determines default spreads in a setting where the debt's collateral is endogenously determined by the borrower's investment choice, and a demand variable with permanent and temporary components. We also consider the possibility that the borrower cannot commit to taking the value-maximizing investment choice, and may, in addition, be constrained in its ability to raise external capital. Based on a model calibrated to data on office buildings and commercial mortgages, we present numerical simulations that quantify the extent to which investment flexibility, incentive problems, and credit constraints affect default spreads. Copyright 2004 by The American Finance Association.
Year of publication: |
2004
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Authors: | Titman, Sheridan ; Tompaidis, Stathis ; Tsyplakov, Sergey |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 59.2004, 1, p. 165-205
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Publisher: |
American Finance Association - AFA |
Saved in:
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