TY - JOUR T1 - How a Credit Enhancement Affects Bond Liquidity and Default Risk of the Firm JF - The Journal of Fixed Income SP - 24 LP - 37 DO - 10.3905/jfi.2018.28.3.024 VL - 28 IS - 3 AU - Jeffrey R. Black AU - Seth A. Hoelscher AU - Duane Stock Y1 - 2018/12/31 UR - https://pm-research.com/content/28/3/24.abstract N2 - 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 ER -