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Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure

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dc.contributor.author Chen, Hui
dc.date.accessioned 2011-09-01T21:22:31Z
dc.date.available 2011-09-01T21:22:31Z
dc.date.issued 2010-11
dc.identifier.uri http://hdl.handle.net/1721.1/65596
dc.description.abstract I build a dynamic capital structure model that demonstrates how business-cycle variations in expected growth rates, economic uncertainty, and risk premia influence firms’ financing and default policies. Countercyclical fluctuations in risk prices, default probabilities, and default losses arise endogenously through firms’ responses to the macroeconomic conditions. These comovements generate large credit risk premia for investment grade firms, which helps address the “credit spread puzzle” and “under-leverage puzzle” in a unified framework. The model generates interesting dynamics for financing and defaults, including “credit contagion” and market timing of debt issuance. It also provides a novel procedure to estimate state-dependent default losses. en_US
dc.description.sponsorship Katherine Dusak Miller Ph.D. Fellowship in Finance en_US
dc.language.iso en_US
dc.publisher American Finance Association en_US
dc.relation.isversionof http://dx.doi.org/10.1111/j.1540-6261.2010.01613.x en_US
dc.rights Creative Commons Attribution-Noncommercial-Share Alike 3.0 en_US
dc.rights.uri http://creativecommons.org/licenses/by-nc-sa/3.0/ en_US
dc.source SSRN en_US
dc.title Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure en_US
dc.type Article en_US
dc.identifier.citation Chen, Hui. “Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure.” The Journal of Finance 65.6 (2010) : 2171-2212. © 2010 the American Finance Association en_US
dc.contributor.department Sloan School of Management en_US
dc.contributor.approver Chen, Hui
dc.contributor.mitauthor Chen, Hui
dc.relation.journal Journal of Finance en_US
dc.identifier.mitlicense OPEN_ACCESS_POLICY en_US
dc.eprint.version Author's final manuscript en_US
dc.type.uri http://purl.org/eprint/type/JournalArticle en_US
eprint.status http://purl.org/eprint/status/PeerReviewed en_US
dspace.orderedauthors CHEN, HUI en


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