We develop a credit-risk model to study the informational role of investment in bankruptcy. Firms' investment decisions carry information about their asset quality, thereby mitigating informational frictions when firms enter bankruptcy. An increase in aggregate investment can reduce the...

We develop a credit-risk model to study how information acquisition affects the liquidity in a secondary bond market. In our model, the creditors of a firm can acquire costly information about the firm and exploit the information advantage by selling their bonds to uninformed buyers. When a...

We develop a credit-risk model to study the informational role of investment in an economy susceptible to large liquidity shocks. Firms' investment decisions carry information about their asset quality, thereby mitigating informational frictions when firms enter bankruptcy. An increase in...