PT  - JOURNAL ARTICLE
AU  - Jeffrey R. Black
AU  - Seth A. Hoelscher
AU  - Duane Stock
TI  - How a Credit Enhancement Affects Bond Liquidity and Default Risk of the Firm
AID  - 10.3905/jfi.2018.28.3.024
DP  - 2018 Dec 31
TA  - The Journal of Fixed Income
PG  - 24--37
VI  - 28
IP  - 3
4099  - https://pm-research.com/content/28/3/24.short
4100  - https://pm-research.com/content/28/3/24.full
AB  - The authors use a quasi-natural experiment to analyze the impact of a particular type of credit enhancement, a government guarantee, on bond liquidity and default risk of the firm. They find that a guarantee (1) dramatically increases the liquidity of a bond, (2) generally reduces the default risk of the firm and pre-existing bonds issued by the firm, and (3) increases the liquidity of pre-existing non-guaranteed debt issued by the same firm. They find that the liquidity improvement caused by a guarantee reduces overall default risk of the firms by 5.84%.TOPICS: Fixed income and structured finance, credit risk management, legal/regulatory/public policy