Term structure models have often been criticized for failing to explain satisfactorily the yield spread between corporate and Treasury bonds. A potential problem is that the personal tax effect is ignored in these models. In this paper, we employ a structural model to investigate the role of...

The structural approach offers an integrated framework to deal with yield spreads and default probability simultaneously. However, structural models perform poorly in predicting corporate bond spreads. It is unclear whether this poor performance is caused by characteristics of individual models,...