Credit Ratings, Collateral, and Loan Characteristics: Implications for Yield
AbstractThis article studies how collateral affects bond yields. Using a large data set of public bonds, we document that collateralized debt has higher yield than general debt, after controlling for credit rating. Our model of agency problems between managers and claim holders explains this puzzling result by recognizing imperfections in the rating process. We test the model's implications. Consistent with our model and in results new to the literature, we find the yield differential between secured and unsecured debt, after controlling for credit rating, is larger for low credit rating, nonmortgage assets, longer maturity, and with proxies for lower levels of monitoring.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 76 (2003)
Issue (Month): 3 (July)
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Web page: http://www.journals.uchicago.edu/JB/
Other versions of this item:
- John, Kose & Lynch, Anthony W. & Puri, Manju, 2002. "Credit Ratings, Collateral and Loan Characteristics: Implications for Yield," Research Papers 1748, Stanford University, Graduate School of Business.
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