Interest rate swaps and corporate default
This paper studies firms’ usage of interest rate swaps to manage risk in a model economy driven by aggregate productivity shocks, inflation shocks, and counter-cyclical idiosyncratic productivity risk. Consistent with empirical evidence, firms in the model are fixed-rate payers, and swap positions are negatively correlated with the term spread. In the model, swaps affect firms’ investment decisions and debt pricing only very moderately, and the availability of swaps generates only small economic gains for the typical firm. JEL Classification: E44, G12
|Date of creation:||Sep 2013|
|Contact details of provider:|| Postal: 60640 Frankfurt am Main, Germany|
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Russell W. Cooper & John C. Haltiwanger, 2006.
"On the Nature of Capital Adjustment Costs,"
Review of Economic Studies,
Oxford University Press, vol. 73(3), pages 611-633.
- Titman, Sheridan, 1992.
" Interest Rate Swaps and Corporate Financing Choices,"
Journal of Finance,
American Finance Association, vol. 47(4), pages 1503-1516, September.
- Sheridan Titman, 1990. "Interest rate swaps and corporate financing choices," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages -.
- Harjoat S. Bhamra & Lars-Alexander Kuehn & Ilya A. Strebulaev, 2010. "The Levered Equity Risk Premium and Credit Spreads: A Unified Framework," Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 645-703, February.
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
- repec:cup:jfinqa:v:46:y:2011:i:06:p:1727-1754_00 is not listed on IDEAS
- Russell Cooper & Joao Ejarque, 2003. "Financial Frictions and Investment: Requiem in Q," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 710-728, October.
- Smith, Clifford W. & Stulz, René M., 1985. "The Determinants of Firms' Hedging Policies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(04), pages 391-405, December.
- Li, Haitao & Mao, Connie X., 2003. "Corporate use of interest rate swaps: Theory and evidence," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1511-1538, August.
When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20131590. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.