Doh, Hyun Soo; Wang, Yiyao - In: Journal of derivatives and quantitative studies 32 (2024) 3, pp. 238-263
We develop a credit-risk model to study the informational role of investment in an economy susceptible to large … liquidity shocks. Firms' investment decisions carry information about their asset quality, thereby mitigating informational … frictions when firms enter bankruptcy. An increase in aggregate investment can reduce the informational value of investment …