This paper examines whether capital structure is irrelevant for enterprise value and investment when investors care about environmental, social, and governance issues, which we denote “ESG-Modigliani-Miller” (ESG-MM). Theoretically, we show that ESG-MM holds if ESG is additive and markets...

We show that bonds issued by financial firms have higher spreads than bonds issued by industrial firms with the same rating and we denote this difference the financial premium. During the period 1987-2020 the premium was on average 43bps in the U.S. corresponding to a 31% higher spread and the...

Models of capital structure and credit risk make predictions about market valuations of debt, but are routinely tested on the basis of book debt from common data sources. In this paper, we propose to close this gap. We construct a rich data set on firm level debt market valuations by carefully...

We introduce a reduced-form term structure model with closed-form solutions for yields where the short rate and market prices of risk are nonlinear functions of Gaussian state variables. The nonlinear model with three factors matches the time-variation in expected excess returns and yield...

The dynamics of debt are crucial in structural models of credit risk and this paper provides new empirical evidence on these dynamics. For US industrial firms, we find that the future level of debt is negatively related to current leverage. Furthermore, when a firm experiences a negative shock...

We document cross-sectional variation in bid-ask spreads in the U.S. corporate bond market and use the variation to test OTC theories of the bid-ask spread. Bid-ask spreads, measured by realized transaction costs, increase with maturity for investment grade but not for speculative grade bonds....

Recent decades have witnessed several waves of buyout activity. We find LBOs to be a significant concern for bondholders by showing that a) intra-industry credit spreads increase upon an LBO announcement, b) yields on bonds without event risk covenants are, on average, 21bps higher than those on...

We ask whether a standard structural model (Black and Cox (1976)) is able to explain credit spreads on corporate bonds and, in contrast to much of the literature, we find that the model matches the level of investment grade spreads well. Model spreads for speculative grade debt are too low and...