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We present a dynamic general equilibrium model with agency costs where: i) firms are heterogeneous in the risk of default; ii) they can choose to raise finance through bank loans or corporate bonds; and iii) banks are more efficient than the market in resolving informational problems. The model...
Persistent link: https://www.econbiz.de/10012461679
ratings are similar between the two sources of funding. As expected from theory, we find that the liquidity advantage of cov …
Persistent link: https://www.econbiz.de/10012479423
shift from bank finance to bond finance, at a time when the cost of market debt rose above the cost of bank loans. We show …
Persistent link: https://www.econbiz.de/10012457936
markets in such an environment. Corporate credit is provided by either a bond market or risk-averse banks. Restructuring of … patterns better than fixed-issuance-cost models. Across systems, efficient bankruptcy should be associated with more bond …
Persistent link: https://www.econbiz.de/10012459246
an over-the-counter secondary market with search frictions. Bargaining with dealers determines a bond's endogenous … liquidity, which depends on both the firm fundamental and the time-to-maturity of the bond. Corporate default decisions interact … endogenous default worsens a bond's secondary market liquidity, which amplifies equity holders' rollover losses, which in turn …
Persistent link: https://www.econbiz.de/10012460252
This paper develops a simple theory of the supply of index bonds by a firm, and uses that model to examine in some … theory involve the trade-off between the tax advantages of using debt finance and the increasing risk of bankruptcy debt … finance involves. The theory is first used to examine the supply of nominal bonds -- it is thus a theory of the debt …
Persistent link: https://www.econbiz.de/10012478818
This paper examines the portfolio choice of savings and loan associations (SLAS) between mortgages and bonds, first in a certainty world and then under uncertainty. Differences in servicing and transactions costs, in default losses, in tax treatment and in the timing of payments are accounted...
Persistent link: https://www.econbiz.de/10012478390
This paper begins by examining the ways in which pension liabilities are and are not like corporate bonds. Some conceptual issues involved in valuing future pension obligations are then discussed. The second section considers the advantage to firms of fully funding their pension obligations and...
Persistent link: https://www.econbiz.de/10012478415
Lenders are unwilling to accept lower credit spreads for secured debt relative to unsecured debt when a firm is healthy. However, they accept significantly lower credit spreads for secured debt when a firm's credit quality deteriorates, the economy slows, or average credit spreads widen. This...
Persistent link: https://www.econbiz.de/10012479323
that this increase was driven by large-denomination bond issuances, most of them with face value of exactly US$500 million …
Persistent link: https://www.econbiz.de/10012479928