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 very moderately, and the availability of swaps generates only small economic gains for the typical firm.
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References listed on IDEAS
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- Monika Piazzesi, 2012. "Banks' Risk Exposure," Annual Meeting Plenary 2012-2, Society for Economic Dynamics.
- 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.
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" Interest Rate Swaps and Corporate Financing Choices,"
Journal of Finance,
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- Russell W. Cooper & John C. Haltiwanger, 2006.
"On the Nature of Capital Adjustment Costs,"
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Oxford University Press, vol. 73(3), pages 611-633.
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- Barnea, Amir & Haugen, Robert A & Senbet, Lemma W, 1980. " A Rationale for Debt Maturity Structure and Call Provisions in the Agency Theoretic Framework," Journal of Finance, American Finance Association, vol. 35(5), pages 1223-1234, December.
- 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.
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