Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/230374
Authors: 
Benzoni, Luca
Garlappi, Lorenzo
Goldstein, Robert S.
Year of Publication: 
2019
Series/Report no.: 
Working Paper No. 2019-08
Abstract: 
We propose a tractable model of a firm's dynamic debt and equity issuance policies in the presence of asymmetric information. Because "investment-grade" firms can access debt markets, managers who observe a bad private signal can both conceal this information and shield shareholders from infusing capital into the firm by issuing new debt to service existing debt, thus avoiding default. The implication is that the "asymmetric information channel" can generate jumps to default (from the creditors' perspective) only for those "high-yield" firms that have exhausted their ability to borrow. Thus, our model deepens the "credit spread puzzle" for investment-grade firms.
Subjects: 
Credit spreads
Capital structure
Corporate Default
Jumps to Default
JEL: 
G12
G32
G33
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.