Default, Recovery, and the Macroeconomy Public Deposited

Downloadable Content

Download PDF
Last Modified
  • March 19, 2019
Creator
  • 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
Keyword
Subject
Identifier
Resource type
Rights statement
  • In Copyright
Advisor
  • Jotikasthira, Chotibhak
  • Jones, Charles
  • Reed, Adam
  • Lundblad, Christian
  • Brown, Gregory
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.
Parents:

This work has no parents.

Items