A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
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Results 8 resources
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This article examines the effect of issuing debt with and without 'poison put' covenants on outstanding debt and equity claims for the period 1988 to 1989. The analysis shows that poison put covenants affect stockholders negatively and outstanding bondholders positively, while debt issued without such covenants has no effect. The study also finds a negative relationship between stock and bond returns for firms issuing poison put debt. These results are consistent with a 'mutual interest hypothesis,' which suggests that the issuance of poison put debt protects managers and, coincidentally, bondholders at the expense of stockholders.
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This article examines corporate debt values and capital structure in a unified analytical framework. It derives closed-form results for the value of long-term risky debt and yield spreads, and for optimal capital structure, when firm asset value follows a diffusion process with constant volatility. Debt values and optimal leverage are explicitly linked to firm risk, taxes, bankruptcy costs, risk-free interest rates, payout rates, and bond covenants. The results elucidate the different behavior of junk bonds versus investment-grade bonds, and aspects of asset substitution, debt repurchase, and debt renegotiation.
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The authors propose an empirical method that utilizes the conditional density of the state variables to estimate and test a term structure model with known price formulae using data on both discount and coupon bonds. The method is applied to an extension of a two-factor model due to J. C. Cox, J. E. Ingersoll, and S. A. Ross (1985). The authors' results show that estimates based on only bills imply unreasonably large price errors for longer maturities. They reject the original Cox, Ingersoll, and Ross model using a likelihood ratio test and conclude that the extended Cox, Ingersoll, and Ross model also fails to provide a good description of the Treasury market.
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This article examines managerial ownership structure and return premia on corporate bonds. It is argued that, when managerial ownership is low, an increase in managerial ownership increases management's incentives to increase stockholder wealth at the expense of bondholder wealth. When ownership increases more, however, it is argued that management becomes more risk averse, with incentives more closely aligned with bondholders. This study finds a positive relation between managerial ownership and bond return premia in the low to medium (5 to 25 percent) ownership range. There is also weak evidence for a nonpositive relation in the large (over 25 percent) ownership range. Coauthors are Nikolaos T. Milonas, Anthony Saunders, and Nickolaos G. Travlos.
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A new empirical model for intertemporal capital asset pricing is presented that allows both time-varying risk premia and betas where the latter are identified from the dynamics of the conditional covariance of returns. The model is more successful in explaining the predictable variations in excess returns when the returns on the stock market and corporate bonds are included as risk factors than when the stock market is the single factor. Although changes in the covariance of returns induce variations in the betas, most of the predictable movements in returns are attributed to changes in the risk premia.
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This study examines stock and bond price reactions to dividend changes. The positive stock market response to dividend increases has several potential explanations, two of the more commonly discussed being information content and wealth redistribution between stockholders and bondholders. The evidence presented supports the wealth redistribution hypothesis but does not rule out the information content hypothesis. Typically, the authors find that the bond price reaction to announcements of large dividend changes is opposite to the stock price reaction. Their results differ from those of G. Handjinicolaou and A. Kalay (1984).
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We model firms' choice between bank loans and publicly traded debt, allowing for debt renegotiation in the event of financial distress. Entrepreneurs, with private information about their probability of financial distress, borrow from banks (multiperiod players) or issue bonds to implement projects. If a firm is in financial distress, lenders devote a certain amount of resources (unobservable to entrepreneurs) to evaluate whether to liquidate the firm or to renegotiate its debt. We demonstrate that banks' desire to acquire a reputation for making the "right" renegotiation versus liquidation decision provides them an endogenous incentive to devote a larger amount of resources than bondholders toward such evaluations. In equilibrium, bank loans dominate bonds from the point of view of minimizing inefficient liquidation; however, firms with a lower probability of financial distress choose bonds over bank loans.