Bankruptcy Risk and Optimal Capital Structure

This study finds shortcomings in empirical tests of the capital structure irrelevance hypothesis. The alternative hypothesis is that firms choose value maximizing mixes of debt and equity on account of bankruptcy costs and the tax deductibility of interest payments. Based upon the cross-sectional implications of the tax shelter-bankruptcy cost hypothesis, an alternative test of the irrelevance hypothesis is performed. The test examines the relationship between failure rates and leverage ratios for 36 lines of business. The results are inconsistent with the irrelevance hypothesis.     

节税收益、破产成本与最优资本结构

本文在正确定义债务的节税收益和破产成本的基础上,运用实物期权定义并定量描述了破产成本,进而建立了确定最优资本结构的ZZ杠杆模型。将自变量的典型值代入模型得出的最优债务比率与以往的实际调查数据非常接近,从而使一些长期难以解释的"资本结构之谜",例如"财务保守行为"等得到了一个合理的解释。     

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 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.     

Limited Investment Capital and Credit Spreads

Using proprietary credit default swap (CDS) data, I investigate how capital shocks at protection sellers impact pricing in the CDS market. Seller capital shocks—measured as CDS portfolio margin payments—account for 12% of the time‐series variation in weekly spread changes, a significant amount given that standard credit factors account for 18% during my sample. In addition, seller shocks possess information for spreads that is independent of institution‐wide measures of constraints. These findings imply a high degree of market segmentation, and suggest that frictions within specialized financial institutions prevent capital from flowing into the market at shorter horizons.     

Human Capital,Bankruptcy, and Capital Structure

We derive the optimal labor contract for a levered firm in an economy with perfectly competitive capital and labor markets. Employees become entrenched under this contract and so face large human costs of bankruptcy. The firm's optimal capital structure therefore depends on the trade‐off between these human costs and the tax benefits of debt. Optimal debt levels consistent with those observed in practice emerge without relying on frictions such as moral hazard or asymmetric information. Consistent with empirical evidence, persistent idiosyncratic differences in leverage across firms also result. In addition, wages should have explanatory power for firm leverage.     

Optimal Monetary Policy with Countercyclical Credit Spreads

We study optimal monetary policy in a New‐Keynesian Dynamic Stochastic General Equilibrium (DSGE) model with a credit channel and relationship lending in banking. We show that borrowers' bank‐specific (deep) habits give rise to countercyclical credit spreads, which, in turn, make optimal monetary policy depart substantially from price stability, under both discretion and commitment. Our analysis shows that the welfare costs of setting monetary policy under discretion (with respect to the optimal Ramsey plan) and of using simpler suboptimal policy rules are strictly increasing in the magnitude of deep habits in credit markets and market power in banking.     

Default and Recovery Implicit in the Term Structure of Sovereign CDS Spreads

This paper explores the nature of default arrival and recovery implicit in the term structures of sovereign CDS spreads. We argue that term structures of spreads reveal not only the arrival rates of credit events ${(\lambda }^{?})$, but also the loss rates given credit events. Applying our framework to Mexico, Turkey, and Korea, we show that a single‐factor model with ${\lambda }^{?}$ following a lognormal process captures most of the variation in the term structures of spreads. The risk premiums associated with unpredictable variation in ${\lambda }^{?}$ are found to be economically significant and co‐vary importantly with several economic measures of global event risk, financial market volatility, and macroeconomic policy.     

Credit Ratings and Capital Structure

This paper examines to what extent credit ratings directly affect capital structure decisions. The paper outlines discrete costs (benefits) associated with firm credit rating level differences and tests whether concerns for these costs (benefits) directly affect debt and equity financing decisions. Firms near a credit rating upgrade or downgrade issue less debt relative to equity than firms not near a change in rating. This behavior is consistent with discrete costs (benefits) of rating changes but is not explained by traditional capital structure theories. The results persist within previous empirical tests of the pecking order and tradeoff capital structure theories.     

货币政策、信贷渠道与资本结构

我国金融市场以银行体系为主,在企业融资研究中,考察货币政策的影响具有重要的现实意义。依据"信贷观"下的贷款渠道及信贷配给理论,分析表明,当货币政策变化影响到信贷供给时,未受约束企业的资本结构在政策紧缩时受影响较小,而受约束企业的杠杆率随着政策的紧缩(宽松)而减小(增大)。考察我国2003-2009年的非金融类上市公司的资本结构,在政策紧缩时经验证据与理论分析一致;但在政策宽松时资本结构的调整与"信贷观"并不一致,受约束企业的杠杆仍然较小,未受约束企业的权益及债务均较大。研究结论对于解释我国货币政策效应及企业融资决策,改进金融监管均具有重要的借鉴。     

Credit Spreads and Monetary Policy

We consider the desirability of modifying a standard Taylor rule for interest rate policy to incorporate adjustments for measures of financial conditions. We consider the consequences of such adjustments for the way policy would respond to a variety of disturbances, using the dynamic stochastic general equilibrium model with credit frictions developed in Cúrdia and Woodford (2009a) . According to our model, an adjustment for variations in credit spreads can improve upon the standard Taylor rule, but the optimal size of adjustment depends on the source of the variation in credit spreads. A response to the quantity of credit is less likely to be helpful.     

Macroeconomic Conditions, Firm Characteristics, and Credit Spreads

We study a structural model that allows us to examine how credit spreads are affected by the interaction of macroeconomic conditions and firm characteristics. Unlike most other structural models, our model explicitly incorporates equilibrium macroeconomic dynamics and models a firm's cash flow as primitive processes. Corporate securities are priced as contingent claims written on cash flows. Default occurs when the firm's cash flow cannot cover the interest payments and the recovery rate is dependent on the economic condition at default. Our model produces the following predictions: (i) credit spread is mostly negatively correlated with interest rate; (ii) credit spread yield curves are upward sloping for low-grade bonds; (iii) firm characteristics have significant effects on credit spreads and these effects also vary with economic conditions. These predictions are consistent with the available empirical evidence and generate implications for further empirical investigation.     

资本监管与银行最优资本结构

资本监管已成为现代商业银行监管体系的核心,而现有研究对资本监管的重要性缺乏系统的理论研究。基于此,本文从MM理论出发,逐步分析并得出:银行自身经营的特殊性、银行作为一般企业所追求的企业价值最大化行为以及银行作为特殊企业所得到的银行安全网保护等因素使得银行形成不断提高最优资产负债率和降低资本充足率的内在机制,逐步分析不同情形下的银行最优资本结构,进而说明资本监管对于维系银行经营的稳健性和审慎性以及减少银行破产而导致的负外部性等方面的重要作用。     

Optimal Financial Structure, Cost of Capital, and the Lease-or-Buy Decision

This note comments on the doubtful application of an economic concept of personal income to the non-personal business enterprise situation.
This paper presents a series of models which we believe properly reflect the relevant relationships in the lease or buy evaluation. The models present the proper cash flow variables for such an analysis and they present the impact on asset net present value of cost of capital and market risk assessment. Finally, the models reflect the simultaneous effect on asset and financial structure of the acceptance of a particular investment opportunity.     

Liquidity or Credit Risk? The Determinants of Very Short‐Term Corporate Yield Spreads

Employing a comprehensive database on transactions of commercial paper issued by domestic U.S. nonfinancial corporations, we study the determinants of very short‐term corporate yield spreads. We find that liquidity plays a role in the determination of spreads but, somewhat surprisingly, credit quality is the more important determinant of spreads, even at horizons of less than 1 month. These results are robust across a variety of proxies for liquidity and credit risk, and have important implications for the literature on the modeling of corporate bond prices.     

Optimal Capital Structure and Industry Dynamics

This paper provides a competitive equilibrium model of capital structure and industry dynamics. In the model, firms make financing, investment, entry, and exit decisions subject to idiosyncratic technology shocks. The capital structure choice reflects the tradeoff between the tax benefits of debt and the associated bankruptcy and agency costs. The interaction between financing and production decisions influences the stationary distribution of firms and their survival probabilities. The analysis demonstrates that the equilibrium output price has an important feedback effect. This effect has a number of testable implications. For example, high growth industries have relatively lower leverage and turnover rates.     

信贷歧视、金融发展与民营企业银行借款期限结构

本文研究信贷歧视对民营企业银行借款期限结构的影响机理和实际效应,以及在我国金融发展深化的背景下,金融发展水平提升对"产权—借款期限结构"关系的影响。研究发现,企业风险是影响银行信用期限的重要因素,基于产权的信贷歧视使银行对民企执行更严格的风险控制,使民企的银行借款期限结构明显短于国企,从而不利于不同产权企业间的公平竞争。研究还发现,金融发展促进银行行为更加市场化,信用期限与企业风险的关系更加密切;金融发展弱化了信贷歧视,民营企业的借款期限结构逐渐延长,且与国有企业之间的差异缩小。本文研究结论有助于民营企业财务行为的优化和促进金融发展相关制度的推进。     

A Multifactor Model of Credit Spreads

We represent credit spreads across ratings as a function of common unobservable factors of the Vasicek form. Using a state-space approach we estimate the factors, their process parameters, and the exposure of each observed credit spread series to each factor. We find that most of the systematic variation across credit spreads is captured by three factors. The factors are closely related to the implied volatility index (VIX), the long bond rate, and S&P500 returns, supporting the predictions of structural models of default at an aggregate level. By making no prior assumption about the determinants of yield spread dynamics, our study provides an original and independent test of theory. The results also contribute to the current debate about the role of liquidity in corporate yield spreads. While recent empirical literature shows that the level and time-variation in corporate yield spreads is driven primarily by a systematic liquidity risk factor, we find that the three most important drivers of yield spread levels relate to macroeconomic variables. This suggests that if credit spread levels do contain a large liquidity premium, the time variation of this premium is likely driven by the same factors as default risk.