Based on an empirical analysis of European corporations, we investigate the impact of sovereign risk on the pricing of corporate credit risk. In our paper, we show that sovereign credit default swaps (CDS) are positively correlated with corresponding corporate CDS spreads and are a significant...

This study examines the earnings management behaviour of 455 distressed US firms that filed for bankruptcy during the period 1986-2001. We examine (a) possible earnings management during the years prior to bankruptc-filing, (b) whether qualified audit opinions cause conservative earnings...

This paper proposes several frameworks to estimate the appropriate default correlations for structured products, each of which jointly considers the role of co-movements in modeled risk characteristics and un-modeled systematic risk, or 'frailty'. We contrast our estimates with credit rating...

Within a sample of firms undergoing financial distress, where the incentive to send false positive signals is high, we show that insider trading serves as a credible information channel about potential recovery for outside investors. We employ credit rating downgrades as confirmation of the...

I examine the role of sell-side debt analyst reports in the corporate bond market for financially distressed firms. Debt analysts are not subject to the same conflict-of-interest regulations as equity analysts, and for this reason it is an open question whether the primary function of debt...

We develop a theoretical model quantifying how firm-level pandemic exposure and sentiment, as informational shocks, affect a firm’s credit spread and default risk. Consistent with model predictions, we find significantly positive impacts on single-name credit default swap (CDS) spreads from...

The relationship between the stock-market implication of a bankrupt firm's prospect and the unsecured creditors' recovery rate is often overlooked as they are seemingly unrelated to each other. However, if the APR is strictly applied, the existing shareholders of a bankrupt firm will not be...

We investigate the problem of modeling defaults of dependent credits. In the framework of the class of structural default models we study threshold models where for each credit the underling ability-to-pay process is a transformation of a Wiener processes. We propose a model for dependent...

We develop a model of investment, payout, and financing policies in which firms face uncertainty regarding their ability to raise funds and have to search for investors when in need of capital. We show that capital supply uncertainty leads firms to value financial slack and to adjust their...