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The information sensitivity of debt in good and bad times

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  • Brancati, Emanuele
  • Macchiavelli, Marco

Abstract

We empirically show the dynamics of information production and information sensitivity of bank debt around the Great Recession. As more precise information is produced at the onset of the crisis, bank debt becomes informationally sensitive, along two separate dimensions. First, precise information amplifies the effect of market expectations on default risk; second, for banks that are already expected to perform poorly, more precise information further increases default risk. Both effects are muted in good times. Overall, our findings are consistent with information-based models of financial crises.

Suggested Citation

  • Brancati, Emanuele & Macchiavelli, Marco, 2019. "The information sensitivity of debt in good and bad times," Journal of Financial Economics, Elsevier, vol. 133(1), pages 99-112.
  • Handle: RePEc:eee:jfinec:v:133:y:2019:i:1:p:99-112
    DOI: 10.1016/j.jfineco.2019.01.002
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    More about this item

    Keywords

    Financial crisis; CDS spreads; Information sensitivity;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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