RT Journal Article
SR Electronic
T1 How a Credit Enhancement Affects Bond Liquidity and Default Risk of the Firm
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 24
OP 37
DO 10.3905/jfi.2018.28.3.024
VO 28
IS 3
A1 Jeffrey R. Black
A1 Seth A. Hoelscher
A1 Duane Stock
YR 2018
UL https://pm-research.com/content/28/3/24.abstract
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