In this paper, we study how risk-shifting incentives and the design of debt covenants are affected by the pattern of temporal resolution of uncertainty (TRU) in the underlying technology of the firm. We show that the extent of risk-shifting as well as the yield demanded on corporate debt are...

Designing novel proxies for temporal resolution of uncertainty (TRU), we find that the later the uncertainty facing the firm is resolved, the larger the yields on corporate debt issued between 1987 and 1996. This result is robust to different test specifications and is of nontrivial economic...