This paper attempts to link the agency literature (concerned with the fact that tensions between bondholders and shareholders may trigger suboptimal investment decisions) with the one dealing with temporal resolution of uncertainty (TRU). We consider here how the speed of resolution of the...

This paper examines the relation between industry competition, credit spreads, and levered equity returns. I build a quantitative model where firms make investment, financing, and default decisions subject to aggregate and idiosyncratic risk. Firms operate in heterogeneous industries that differ...

This paper develops a model with the novel feature that firms can renegotiate debt both in and outside distress. We show that this feature is crucial for debt renegotiation models to explain corporate policies and debt prices. Specifically, the model reflects empirical credit spread patterns,...

We find that US public firms spread out their debt more across different sources in recession quarters, making measures of debt concentration move pro-cyclically, on average. There is substantial cross-sectional variation in these dynamics. In particular, firms with already low leverage and high...

This paper investigates whether firm managers time debt issuances according to market liquidity conditions. Using transactions data in the U.S. market from July 2002 to December 2009, our results show that both the moment and volume of debt issuance are significantly associated with periods of...

We derive expected bond return equations for various structural credit valuation models with alternative stochastic processes and boundary conditions for default given in Merton [1974], Merton [1976], Black and Cox [1976], Heston [1993], Longstaff and Schwartz [1995], and Collin-Dufresne and...

We embed a structural model of credit risk inside a dynamic continuous-time consumption-based asset pricing model, which allows us to price equity and corporate debt in a unified framework. Our key economic assumptions are that the first and second moments of earnings and consumption growth...

This study investigates how credit spread dynamically responds to the change in aggregate Tobin's q ratio. The VAR results from analyzing quarterly data from 1951 Q4 to 2012 Q4 reveal that credit spread drops significantly following the shock to the change in aggregate Tobin's q ratio. There is...

Do credit spreads signal firm investment opportunities just like Tobin's q? Because both credit spreads and Tobin's q are market prices, they should contain similar information about the firm. I develop an investment model in which an analytical relation is established between the marginal q and...

We propose a tractable bond pricing model in which managers have an informational advantage over creditors. We show that, regardless of how poor their private signal is, managers of firms that can access the credit market will avoid default by issuing new debt to service existing debt....