The current U.S. tax code's loss carry provisions provide implicit tax subsidies to financially troubled firms. Since shareholders ultimately decide when to announce bankruptcy, such tax subsidies can incentivize them to strategically postpone default. Therefore, corporate taxation can influence...

Extant evidence suggests short sales have pertinent information about firm fundamentals. If so, then information from short selling in liquid equity markets can be informative for infrequently traded corporate bonds. The adverse information conveyed by short interest should mean higher cost of...