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Investment Opportunities and Corporate Credit Risk

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  • Eugenia Andreasen
  • Patricio Valenzuela

    ()

Abstract

Using a panel dataset for international corporate bonds, this paper explores the relationship between investment opportunities and corporate credit risk. Consistent with theoretical arguments that investment opportunities reduce a firm’s likelihood of bankruptcy, this study shows that corporate credit spreads are negatively related to proxies for investment opportunities, even after controlling for the standard determinants of credit risk. This result is stronger for bonds maturing in the short and medium term. This paper also presents evidence that credit spreads and investment opportunities are linked through a credit-rating channel. JEL CODE: F3, F4, G1, G2, G3. Key words: KEY WORDS: Bankruptcy; Credit ratings; Credit spreads; Default risk; Investment opportunities

Suggested Citation

  • Eugenia Andreasen & Patricio Valenzuela, 2018. "Investment Opportunities and Corporate Credit Risk," Documentos de Trabajo 335, Centro de Economía Aplicada, Universidad de Chile.
  • Handle: RePEc:edj:ceauch:335
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    File URL: http://www.dii.uchile.cl/~cea/sitedev/cea/www/download.php?file=documentos_trabajo/ASOCFILE120180411122334.pdf
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    References listed on IDEAS

    as
    1. Matteo Triossi & Patricio Valdivieso & Benjamín Villena-Roldán, 2013. "A Spatial Model of Voting with Endogenous Proposals: Theory and Evidence from Chilean Senate," Documentos de Trabajo 294, Centro de Economía Aplicada, Universidad de Chile.
    2. Antonio Romero-Medina & Matteo Triossi, 2017. "Take-it-or-leave-it contracts in many-to-many matching markets," Documentos de Trabajo 328, Centro de Economía Aplicada, Universidad de Chile.
    3. Matteo Triossi, 2014. "Assessing the extent of democratic failures. A 99%-Condorcet’s Jury Theorem," Documentos de Trabajo 306, Centro de Economía Aplicada, Universidad de Chile.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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