Rating affects corporate credit costs and leverage choices. Therefore, we develop a corporate valuation model where the choice of leverage is consistent with the implied cost of debt of the rating class. We explicitly model the trigger, the consequences, and the analytical probability of...

The empirical tests of traditional structural models of credit risk tend to indicate that such models have been unsuccessful in the modeling of credit spreads. To address these negative findings some authors introduce single-factor stochastic volatility specifications and/or jumps.In the yield...

Corporate America considers risk management vitally important and considers derivative financial products an indispensable tool for managing many types of financial risk regularly faced by today's corporations. Not content with criticizing derivatives speculation as undesirable, however, some...

We investigate the relationship between derivatives use and the extent of asymmetric information faced by the firm. Using alternative analyst forecast proxies for asymmetric information, we find evidence that both the use of derivatives and the extent of derivatives usage is associated with...

This paper develops a structural model that determines default spreads on risky debt. In contrast to previous research, the value of the debt's collateral is endogenously determined by the borrower's investment choice, as well as by a market demand variable that has permanent as well as...

A quarter-century ago, Miles and Ezzell (1980) solved the valuation problem of a firm that follows a constant leverage ratio L = D/S. However, to this day, the proper discounting of free cash flows and the computation of WACC are often misunderstood by scholars and practitioners alike. For...

We study to what extent firms spread out their debt maturity dates across time, which we call "granularity of corporate debt." We consider the role of debt granularity using a simple model in which a firm's inability to roll over expiring debt causes inefficiencies, such as costly asset sales or...

Most firms face some form of competition in product markets. The degree of competition a firm faces feeds back into its cash flows and affects the values of the securities it issues. Through its effects on stock prices, product market competition affects the prices of options on equity and...

We study to what extent firms spread out their debt maturity dates across time, which we call granularity of corporate debt. We consider the role of debt granularity using a simple model in which a firm's inability to roll over expiring debt causes inefficiencies, such as costly asset sales or...