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Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure

The Journal of finance (New York), 2010-12, Vol.65 (6), p.2171-2212 [Peer Reviewed Journal]

2010 The American Finance Association ;2010 the American Finance Association ;Copyright Blackwell Publishers Inc. Dec 2010 ;ISSN: 0022-1082 ;EISSN: 1540-6261 ;DOI: 10.1111/j.1540-6261.2010.01613.x ;CODEN: JLFIAN

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Title:
Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure
Author: CHEN, HUI
Subjects: Access to credit ; Business cycles ; Business risks ; Business structures ; Capital formation ; Capital structure ; Cash flow ; Corporate finance ; Credit market ; Credit risk ; Default ; default risk ; Economic fluctuations ; Economic growth rate ; Economics ; Financial leverage ; Financial management ; financing ; Financing methods ; Growth rate ; Growth rates ; Loan defaults ; Macroeconomics ; risk premium ; Spread ; Studies ; Yield curves
Is Part Of: The Journal of finance (New York), 2010-12, Vol.65 (6), p.2171-2212
Description: I build a dynamic capital structure model that demonstrates how business cycle variation in expected growth rates, economic uncertainty, and risk premia influences firms' financing policies. Countercyclical fluctuations in risk prices, default probabilities, and default losses arise endogenously through firms' responses to macroeconomic conditions. These comovements generate large credit risk premia for investment grade firms, which helps address the credit spread puzzle and the under-leverage puzzle in a unified framework. The model generates interesting dynamics for financing and defaults, including market timing in debt issuance and credit contagion. It also provides a novel procedure to estimate state-dependent default losses.
Publisher: Malden, USA: Blackwell Publishing Inc
Language: English
Identifier: ISSN: 0022-1082
EISSN: 1540-6261
DOI: 10.1111/j.1540-6261.2010.01613.x
CODEN: JLFIAN
Source: Alma/SFX Local Collection

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Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure

2010 The American Finance Association ;2010 the American Finance Association ;Copyright Blackwell Publishers Inc. Dec 2010 ;ISSN: 0022-1082 ;EISSN: 1540-6261 ;DOI: 10.1111/j.1540-6261.2010.01613.x ;CODEN: JLFIAN

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