This paper shows that bond market liquidity plays an important role in determining corporate debt contracts. We find that bonds with better expected market liquidity are issued with fewer restrictive covenants, longer maturities, and lower offering yield spreads. These results are robust to a...

This paper examines the effects of bond liquidity on firms' investments. We postulate that bond liquidity increases firms' investment opportunities by reducing the cost of capital and improving access to financing. Using the exogenous variation in liquidity generated by the introduction of...

We construct a theoretical framework to investigate the impact of liquidity risk, in the secondary corporate debt market, on corporate risk-taking preferences. Using closed-form solutions, our model shows that equity holders choose to adopt high-risk projects upon the arrival of illiquidity...

Corporate bond spreads are affected by both credit risk and liquidity and it is difficult to disentangle the two factors empirically. In this paper we separate out the credit risk component by examining bonds that are issued by the same firm and that trade on the same day, allowing us to examine...