Default, Recovery, and the Macroeconomy Public Deposited
- Last Modified
- March 19, 2019
- Creator
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Waller, William
- Affiliation: Kenan-Flagler Business School
- Abstract
- While recent theoretical research has highlighted the importance of time-series varia- tion in the cost of financial distress in explaining well-document corporate debt puzzles, empirical research has found that estimates of firm recovery rates are unrelated to overall market conditions. This paper answers the question: do default costs vary across the business cycle or are aggregate measures of default costs simply picking up differences in asset quality? Specifically by jointly estimating a model of ex-ante recovery rates and default probabilities, I find that a one standard deviation increase in the level of interest rates is associated with a 0.3% increase in the cost of default (decrease in recovery rate) and with firms liquidated 13 months earlier than the case of no change in interest rates. Moreover, a one standard deviation increase in the slope of interest rates is associated with a 0.7% decrease in the cost of default (increase in recovery rate) and with firms delaying the default decision 45 months than in the case of no change in interest rates.
- Date of publication
- May 2015
- Keyword
- Subject
- DOI
- Identifier
- Resource type
- Rights statement
- In Copyright
- Advisor
- Reed, Adam
- Jones, Charles
- Brown, Gregory
- Jotikasthira, Chotibhak
- Lundblad, Christian
- Degree
- Doctor of Philosophy
- Degree granting institution
- University of North Carolina at Chapel Hill Graduate School
- Graduation year
- 2015
- Language
- Publisher
- Place of publication
- Chapel Hill, NC
- Access
- There are no restrictions to this item.
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