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Internal liquidity risk in corporate bond yield spreads

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  • Chen, Tsung-Kang
  • Liao, Hsien-Hsing
  • Tsai, Pei-Ling

Abstract

The recent global financial crisis reveals the important role of internal liquidity risk in corporate credit risk. However, few existing studies investigate its effects on bond yield spreads. Panel data for the period from year 1993 through 2008 show that corporate internal liquidity risk significantly impacts bond yield spreads (and changes) when controlling for well-known bond yield determinant variables, traditional accounting measures of corporate debt servicing ability, cash flow volatility, credit ratings, and state variables. This finding indicates that internal liquidity risk should therefore be incorporated into bond yield spread modeling.

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  • Chen, Tsung-Kang & Liao, Hsien-Hsing & Tsai, Pei-Ling, 2011. "Internal liquidity risk in corporate bond yield spreads," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 978-987, April.
    • Handle: RePEc:eee:jbfina:v:35:y:2011:i:4:p:978-987
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    4. Chen, Tsung-Kang & Liao, Hsien-Hsing & Kuo, Hui-Ju, 2013. "Internal liquidity risk, financial bullwhip effects, and corporate bond yield spreads: Supply chain perspectives," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2434-2456.
    5. Chen, Tsung-Kang & Liao, Hsien-Hsing & Chen, Wei-Lun, 2014. "Production efficiency uncertainty and corporate credit risk: Structural form credit model perspectives," Journal of Empirical Finance, Elsevier, vol. 29(C), pages 266-280.
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    8. Areski Cousin & Ying Jiao & Christian y Robert & Olivier David Zerbib, 2021. "Optimal asset allocation subject to withdrawal risk and solvency constraints," Working Papers hal-03244380, HAL.
    9. García-Teruel, Pedro J. & Martínez-Solano, Pedro & Sánchez-Ballesta, Juan Pedro, 2014. "The role of accruals quality in the access to bank debt," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 186-193.
    10. Fatica, Serena & Panzica, Roberto & Rancan, Michela, 2021. "The pricing of green bonds: Are financial institutions special?," Journal of Financial Stability, Elsevier, vol. 54(C).
    11. Nejadmalayeri, Ali & Singh, Manohar, 2012. "Corporate taxes, strategic default, and the cost of debt," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 2900-2916.
    12. Herrmann, Leonie & Stolper, Oscar A., 2017. "Investor familiarity and corporate debt financing conditions," Finance Research Letters, Elsevier, vol. 23(C), pages 263-268.
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    14. Goldstein, Michael A. & Namin, Elmira Shekari, 2023. "Corporate bond liquidity and yield spreads: A review," Research in International Business and Finance, Elsevier, vol. 65(C).
    15. Huang, Xiaoyong & Yu, Cong & Chen, Yunping & Jia, Fei & Xu, Xiangyun, 2022. "Rigid payment breaking, default spread and yields of Chinese treasury bonds," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
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    17. Kalimipalli, Madhu & Nayak, Subhankar & Perez, M. Fabricio, 2013. "Dynamic effects of idiosyncratic volatility and liquidity on corporate bond spreads," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2969-2990.
    18. Anthony Jerome Anderson & Michael Stuart Long, 2017. "Explaining the On-The-Run Puzzle with Corporate Bonds," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(02), pages 1-36, June.
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