Leverage Expectations and Bond Credit Spreads

This is the publisher's version, also available electronically from: http://dx.doi.org/10.1017/S0022109012000300.In an efficient market, spreads will reflect both the issuer’s current risk and investors’ expectations about how that risk might change over time. Collin-Dufresne and Goldstein (2001) show analytically that a firm’s expected future leverage importantly influences the spread on its bonds. We use capital structure theory to construct proxies for investors’ expectations about future leverage changes and find that these significantly affect bond yields, above and beyond the effect of contemporaneous leverage. Expectations under the trade-off, pecking order, and credit-rating theories of capital structure all receive empirical support, suggesting that investors view them as complementary when pricing corporate bonds

Political environment, financial intermediation costs, and financing patterns

Political environment is an important determinant of financial intermediation costs, which eventually affects the external financing patterns of firms. Political gyrations create policy uncertainty, which increases the information risk, weakens the investor demand, and reduces the offer size. This raises the securities’ placement costs for the financial intermediaries, who pass on these costs to the issuing firms in the form of higher underwriter spreads. The issuance costs for new equity and debt capital increase, leading to lower leverage. Simultaneous equation analysis of financing, investment, and cash policies reveals that this channel is distinct from previously documented effects of policy uncertainty on corporate outcomes

The Impact of COVID-19 and Its Policy Responses on Local Economy and Health Conditions

US states have implemented lockdown measures to contain the COVID-19 pandemic. We assess the impact of state policy responses on local economic and health conditions, with the goal to shed light on marginal health benefits and economic costs associated with social distancing. We find that lockdown measures are effective in alleviating disease severity, but yield significant contraction of the economy. Deteriorating health conditions are disruptive to the labor supply, financial health, and economic output. The adverse economic impact of lockdowns exceeds the economic damage brought by the disease itself, but health conditions better forecast economic contraction outcomes

The impact of COVID-19 pandemic on bank lending around the world

We evaluate the influence of the pandemic on global bank lending and identify bank and country char-acteristics that amplify or weaken the effect of the disease outbreak on bank credit. Using a sample of banks from 125 countries, we apply a difference-in-difference methodology and find that bank lending is weaker in countries that are more affected by the health crisis. This effect depends on the bank\u27s fi-nancial conditions, market structure, regulatory and institutional environment, financial intermediary and debt market development, ease of access of corporate firms to debt capital, and the response of the public health sector to the crisis. (c) 2021 Elsevier B.V. All rights reserved

Financial Leverage and Debt Maturity Targeting: International Evidence

We provide evidence on leverage and debt maturity targeting in a large international setting. There are key differences in the relative importance of institutional factors in explaining actual as opposed to target capital structures. Targets and target deviations are plausibly influenced by the institutional environment. Firms from countries with strong legal institutions target lower leverage and higher long-term debt, whereas better-functioning financial systems result in lower target leverage and long-term debt. Financial crisis has shifted the desired structure of the securities toward shorter maturities and has led to more prevalent target deviations. Better institutions significantly decrease the likelihood of target deviations

The impact of COVID-19 pandemic on bank lending around the world

We evaluate the influence of the pandemic on global bank lending and identify bank and country characteristics that amplify or weaken the effect of the disease outbreak on bank credit. Using a sample of banks from 125 countries, we apply a difference-in-difference methodology and find that bank lending is weaker in countries that are more affected by the health crisis. This effect depends on the bank's financial conditions, market structure, regulatory and institutional environment, financial intermediary and debt market development, ease of access of corporate firms to debt capital, and the response of the public health sector to the crisis

Global leverage adjustments, uncertainty, and country institutional strength

Using a broad range of uncertainty measures, we show that uncertainty dramatically slows down firms’ adjustments toward their optimal capital structure. At the upper bound, the estimated speed of leverage adjustments almost halves when uncertainty is high. High quality institutions (common law legal origin, more disclosure to congress and/or to the public, and higher public sector ethics) and presidential political systems offset some of the adverse effects of uncertainty on leverage adjustments. The financial crisis has altered the relationships among uncertainty, adjustment speeds, and a country's institutions; more so for countries with weak institutions and parliamentary systems.peerReviewe