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Credit Spreads on Corporate Bonds and the Macroeconomy in Japan

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  • Kiyotaka Nakashima
  • Makoto Saito

Abstract

Using secondary market data on corporate bonds issued in Japan between 1997 and 2005, this paper explores the determinants of the credit spread of corporate bond rates over interest swap rates. We find that credit spreads properly reflect financial factors at the firm level, including debt-to-equity ratios, volatility, and maturity, particularly for longer-term bonds. In addition, an economy-wide factor common among bond issues unable to be captured by firm-level factors, plays an important role in determining credit spreads, and these economy-wide effects to a great extent cancel out firm-level factors for some subsample periods. We also identify possible factors responsible for the significant economy-wide effects.

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File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd09-068.pdf
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Bibliographic Info

Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd09-068.

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Date of creation: May 2009
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Handle: RePEc:hst:ghsdps:gd09-068

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Keywords: credit spreads; corporate bonds; market liquidity;

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Cited by:
  1. Takanori Tanaka, 2011. "Corporate Governance and the Costs of Public Debt Financing: Evidence from Japan," Discussion Papers in Economics and Business 11-35, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

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