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Temporal Resolution of Uncertainty and Corporate Debt Yields: An Empirical Investigation

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  • Alexander S. Reisz

    (U.S. Department of the Treasury)

  • Claudia Perlich

    (IBM Research Labs)

Abstract

Designing novel proxies for temporal resolution of uncertainty (TRU), we find that the later the uncertainty facing the firm is resolved, the larger the yields on corporate debt issued between 1987 and 1996. This result is robust to different test specifications and is of nontrivial economic significance. An ordered probit test confirms that the speed at which uncertainty is resolved for a given firm is not incorporated in the grading process, although it is priced by the market. Further tests lend more support to the hypothesis of investors' intrinsic timing preferences than to agency-driven increases in risk.

Suggested Citation

  • Alexander S. Reisz & Claudia Perlich, 2006. "Temporal Resolution of Uncertainty and Corporate Debt Yields: An Empirical Investigation," The Journal of Business, University of Chicago Press, vol. 79(2), pages 731-770, March.
  • Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:2:p:731-770
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    File URL: http://dx.doi.org/10.1086/499136
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    Cited by:

    1. John, Kose & Reisz, Alexander S., 2010. "Temporal resolution of uncertainty, disclosure policy, and corporate debt yields," Journal of Corporate Finance, Elsevier, vol. 16(5), pages 655-678, December.

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