Bo Becker, Victoria Ivashina, 28 March 2019

In the past 30 years, defaults on corporate bonds in the US have been substantially above the historical average. Using firm-level data, this column shows that the increase in credit risk can be largely attributed to an increase in the rate at which new and fast-growing firms displace incumbents, a phenomenon defined as ‘disruption’. Incumbent revenue growth suffers when there are many IPOs in an industry, and newly issued bonds in high-disruption industries have higher yields.

Hongda Zhong, 10 May 2016

Many assume that creditor coordination problems can only be a bad thing. In this Vox Views video, Hongda Zhong discusses the benefits of coordination problems among creditors. Such problems may create incentives for firms to pay debt back to avoid being cut out of the credit market in the future. The video was recorded in April 2016 at the First Annual Spring Symposium on Financial Economics organised by CEPR and the Brevan Howard Centre at Imperial College.

Gary Gorton, Guillermo Ordoñez, 27 March 2016

Credit booms are not rare and usually precede financial crises. However, some end in a crisis while others do not. This column argues that credit booms start with an increase in productivity, which subsequently falls much faster during ‘bad booms’. When this decline is severe enough, it changes the informational regime in credit markets, leading to a drying up of credit. A crisis may be the result of an exhausted credit boom and not necessarily of a negative productivity shock. 

Gregory Crawford, Nicola Pavanini, Fabiano Schivardi, 30 April 2015

Many studies argue that asymmetric information plays a key role in lending markets. This column presents new evidence on asymmetric information and imperfect competition on the Italian lending market. An increase in adverse selection causes most of the prices in the sample to increase, most of the quantities to fall, and most of the defaults to rise. However, there is substantial heterogeneity in the response to a rise in adverse selection. Market power could be an explanation why some markets can absorb such shocks better than others. 

Bo Becker, Victoria Ivashina, 03 May 2013

Fixed-income investors that have targets based on imperfect risk measures are tempted to take on additional risk to raise their portfolio yields. This column argues that when yields are low such ‘reaching for yield’ may be especially attractive. New research that quantifies reaching-for-yield for corporate-bond investors shows that insurance companies, which are regulated based on broad ratings categories, assume additional risk by selectively overweighting risker bonds within categories. There is evidence that this distorts pricing and issuance.


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