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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Growth options, macroeconomic conditions, and the cross section of credit risk |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | Journal of Financial Economics |
| Publisher | Elsevier |
| Geographical Reach | international |
| ISSN | 0304-405X |
| Volume | 107 |
| Number | 2 |
| Page Range | 350 - 385 |
| Date | 2013 |
| Abstract Text | This paper develops a structural equilibrium model with intertemporal macroeconomic risk, incorporating the fact that firms are heterogeneous in their asset composition. Compared with firms that are mainly composed of invested assets, firms with growth options have higher costs of debt because they are more volatile and have a greater tendency to default during recession when marginal utility is high and recovery rates are low. Our model matches empirical facts regarding credit spreads, default probabilities, leverage ratios, equity premiums, and investment clustering. Importantly, it also makes predictions about the cross section of all these features. |
| Free access at | Related URL |
| Related URLs | |
| Digital Object Identifier | 10.1016/j.jfineco.2012.08.017 |
| Other Identification Number | merlin-id:9200 |
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