We examine how accounting-based compensation plans influence a firm's contracts with its creditors. After granting long-term accounting-based compensation plans (LTAPs) to CEOs, firms pay lower spreads and have fewer restrictive covenants in new bank loans. Mechanisms leading to lower borrowing...

The literature on income smoothing focuses on the effect of earnings smoothing on the equity market. This paper investigates the effect of income smoothing on the debt market. Using the Tucker-Zarowin (TZ) statistic of income smoothing, we find that firms with higher income smoothing rankings...

The financial crisis of 2007-09 began as a local problem in the mortgage finance market in the United States and Europe but, within months, escalated into a general global financial crisis, resulting in collapsing investment not just in developed nations but also in Shanghai, Rio and Mumbai, and...

Default probabilities (PDs) and correlations play a crucial role in the New Basel Capital Accord. In commercial credit risk models they are an important constituent. Yet, modeling and estimation of PDs and correlations is still under active discussion. We show how the Basel II one factor model...

This paper provides evidence for regulatory arbitrage within the class of assetbacked securities (ABS) based on individual asset holding data of German banks. I find that those banks operating with tight regulatory constraints pick the securities with the highest yield and lowest collateral...

This paper uses the market-standard Gaussian copula model to show that fair spreads on CDO tranches are much higher than fair spreads on similarly-rated corporate bonds. It implies that credit ratings are not sufficient for pricing, which is surprising given their central role in structured...

The study of firms' default has attracted wide interest among both practitioners and scholars. However, attention has often been limited to a relatively small set of financial variables. In this work, we try to increase the scope of analysis extending the investigation to other possible...