Credit and credit risk permeates every corner of the financial world. Previously credit tended to be acknowledged only … when dealing with counterparty credit risk, high-yield debt or credit-linked derivatives, now it affects all things … credit from the beginning-the point at which any borrowing entity (sovereign, corporate, etc.) decides to raise capital …

"Intuition suggests that firms with higher cash holdings are safer and should have lower credit spreads. Yet … empirically, the correlation between cash and spreads is robustly positive and higher for lower credit ratings. This puzzling … reserves are positively related to credit risk, resulting in a positive correlation between cash and spreads. In contrast …