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Rollover risk and corporate bond spreads

  • Patricio Valenzuela

    ()

Using a new data set on corporate bonds placed in international markets by advanced and emerging market borrowers, this paper demonstrates that the impact of debt market illiquidity on corporate bond spreads is exacerbated with a higher proportion of short-term debt. This effect is stronger in speculative-grade bonds and is smaller in the banking sector as banks may have the support of a lender of last resort in times of debt market illiquidity. The paper's major finding is consistent with the predictions of structural credit risk models that argue that a higher proportion of short-term debt increases the firm's exposure to debt market illiquidity through a 'rollover risk' channel.

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File URL: http://www.dii.uchile.cl/~cea/sitedev/cea/www/download.php?file=documentos_trabajo/ASOCFILE120130731100726.pdf
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Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 300.

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Date of creation: 2013
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Handle: RePEc:edj:ceauch:300
Contact details of provider: Web page: http://www.dii.uchile.cl/cea/

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  1. Tarun Chordia, 2005. "An Empirical Analysis of Stock and Bond Market Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 85-129.
  2. John Y. Campbell & Glen B. Taksler, 2002. "Equity Volatility and Corporate Bond Yields," Harvard Institute of Economic Research Working Papers 1945, Harvard - Institute of Economic Research.
  3. Eduardo A. Cavallo & Patricio Valenzuela, 2007. "The Determinants of Corporate Risk in Emerging Markets: An Option-Adjusted Spread Analysis," IDB Publications (Working Papers) 6845, Inter-American Development Bank.
  4. Antonios Antoniou & Yilmaz Guney & Krishna Paudyal, 2006. "The Determinants of Debt Maturity Structure: Evidence from France, Germany and the UK," European Financial Management, European Financial Management Association, vol. 12(2), pages 161-194.
  5. Deesomsak, Rataporn & Paudyal, Krishna & Pescetto, Gioia, 2009. "Debt maturity structure and the 1997 Asian financial crisis," Journal of Multinational Financial Management, Elsevier, vol. 19(1), pages 26-42, February.
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  7. Hayne E. Leland and Klaus Bjerre Toft., 1995. "Optimal Capital Structure, Endogenous Bankruptcy, and the Term Structure of Credit Spreads," Research Program in Finance Working Papers RPF-259, University of California at Berkeley.
  8. Barclay, Michael J & Smith, Clifford W, Jr, 1995. " The Maturity Structure of Corporate Debt," Journal of Finance, American Finance Association, vol. 50(2), pages 609-31, June.
  9. Pierre Collin-Dufresne, 2001. "The Determinants of Credit Spread Changes," Journal of Finance, American Finance Association, vol. 56(6), pages 2177-2207, December.
  10. Zhiguo He & Wei Xiong, 2010. "Rollover Risk and Credit Risk," NBER Working Papers 15653, National Bureau of Economic Research, Inc.
  11. Franklin ALLEN & Elena CARLETTI & Jun 'QJ' QIAN & Patricio VALENZUELA, 2012. "Financial Intermediation, Markets, and Alternative Financial Sectors," Economics Working Papers ECO2012/11, European University Institute.
  12. Juan Carlos Gozzi & Ross Levine & Sergio L. Schmukler, 2009. "Patterns of International Capital Raisings," NBER Working Papers 14961, National Bureau of Economic Research, Inc.
  13. Douglas W. Diamond, 1991. "Debt Maturity Structure and Liquidity Risk," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 709-737.
  14. Dan Covitz & Chris Downing, 2007. "Liquidity or Credit Risk? The Determinants of Very Short-Term Corporate Yield Spreads," Journal of Finance, American Finance Association, vol. 62(5), pages 2303-2328, October.
  15. Long Chen & David A. Lesmond & Jason Wei, 2007. "Corporate Yield Spreads and Bond Liquidity," Journal of Finance, American Finance Association, vol. 62(1), pages 119-149, 02.
  16. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May.
  17. Juan Carlos Gozzi & Ross Levine & Maria Soledad Martinez Peria & Sergio L. Schmukler, 2012. "How Firms Use Domestic and International Corporate Bond Markets," NBER Working Papers 17763, National Bureau of Economic Research, Inc.
  18. Jalilvand, Abolhassan & Harris, Robert S, 1984. " Corporate Behavior in Adjusting to Capital Structure and Dividend Targets: An Econometric Study," Journal of Finance, American Finance Association, vol. 39(1), pages 127-45, March.
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