Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure

I build a dynamic capital structure model that demonstrates how business cycle variation in expected growth rates, economic uncertainty, and risk premia influences firms' financing policies. Countercyclical fluctuations in risk prices, default probabilities, and default losses arise endogenousl...

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Veröffentlicht in:	The Journal of finance (New York) 2010-12, Vol.65 (6), p.2171-2212
1. Verfasser:	CHEN, HUI
Format:	Artikel
Sprache:	eng
Schlagworte:	Access to credit Business cycles Business risks Business structures Capital formation Capital structure Cash flow Corporate finance Credit market Credit risk Default default risk Economic fluctuations Economic growth rate Economics Financial leverage Financial management financing Financing methods Growth rate Growth rates Loan defaults Macroeconomics risk premium Spread Studies Yield curves
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container_title	The Journal of finance (New York)
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creator	CHEN, HUI
description	I build a dynamic capital structure model that demonstrates how business cycle variation in expected growth rates, economic uncertainty, and risk premia influences firms' financing policies. Countercyclical fluctuations in risk prices, default probabilities, and default losses arise endogenously through firms' responses to macroeconomic conditions. These comovements generate large credit risk premia for investment grade firms, which helps address the credit spread puzzle and the under-leverage puzzle in a unified framework. The model generates interesting dynamics for financing and defaults, including market timing in debt issuance and credit contagion. It also provides a novel procedure to estimate state-dependent default losses.
doi_str_mv	10.1111/j.1540-6261.2010.01613.x
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source	Jstor Complete Legacy; Wiley Online Library Journals Frontfile Complete
subjects	Access to credit Business cycles Business risks Business structures Capital formation Capital structure Cash flow Corporate finance Credit market Credit risk Default default risk Economic fluctuations Economic growth rate Economics Financial leverage Financial management financing Financing methods Growth rate Growth rates Loan defaults Macroeconomics risk premium Spread Studies Yield curves
title	Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure
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