A standard assumption of structural models of default is that firms' assets evolve exogenously. In this paper, we examine the importance of accounting for investment options in models of credit risk. In the presence of financing and investment frictions, fi rm-level variables that proxy for...

I construct an infinite-horizon dynamic stochastic general equilibrium model with a collateral constraint and actual default in equilibrium. Entrepreneurs borrow from households through non-recourse debt contracts backed by capital goods. By taking into account the non-linear payoffs of the...

I demonstrate that much of the time series variation in the credit spread on high yield bonds is attributable to changes in the “credit risk premium” rather than changes in expected default losses. The credit risk premium is the expected excess return investors earn from bearing default risk...

Recessions are often accompanied by spikes of corporate default and prolonged declines of business credit. This paper shows that credit and default cycles can result from variations of self-fullling beliefs about credit market conditions. We develop a tractable macroeconomic model in which...

A unique legal reform in 2004 in Sweden redistributed liquidation proceeds from banks holding floating liens to unsecured creditors. Using a country-wide panel of all registered firms, we document that the resulting reduction in collateral capacity contracts the amount and maturity of corporate...

During the transition period from a planned economy to a market economy in the 1990s of China, there was a considerable accrual of deferred payment, and default due to inferior enforcement institutions. This is a very common phenomenon in the transition economies at that time. The Chinese...

Trade credit is differentiated from other lending channels by the underlying sales relationship. Using a unique hand-collected dataset of customer-supplier-matched trade credit, I examine how the importance of a customer's sales to its supplier affects trade credit decisions. Contrary to...

Commercial-paper backup lines account for a substantial share of undrawn loan commitments in the corporate sector, but have despite this received scant attention in the credit-line literature. In this paper, I study the liquidity-insurance properties of backup lines using a comprehensive loan-...

We incorporate long-term defaultable corporate bonds and credit risk in a dynamic stochastic general equilibrium business cycle model. Credit risk amplifies aggregate technology shocks. The debt-capital ratio is a new state variable and its endogenous movements provide a propagation mechanism....