Bank credit risk and structural credit models: Agency and information asymmetry perspectives

Credit spreads: An empirical analysis on the informational content of stocks, bonds, and CDS

“…On the contrary, if one of the series is affected either by non-transient factors different from credit risk or 8 It should be noted that the model is mostly suitable for non-financial firms. For an application of structural models to financial firms see Liao et al (2009). 9 In the case of Ford Motor Credit Co. and General Motors Accept.…”

Information uncertainty, information asymmetry and corporate bond yield spreads

“…This study assumes that information asymmetry positively relates to a firm's fundamental value risk and differs from information uncertainty in economic content. Liao et al (2009) first proposed that information asymmetry plays a critical role in the discrepancy between default probabilities implied by banks' credit ratings and those estimated by Merton-type (1974) structural-form credit models. Liao et al (2009) indicated that information asymmetry increases the interest conflicts between equity-and debt-holders due to less information transparency, making firm value more volatile.…”

“…Liao et al (2009) first proposed that information asymmetry plays a critical role in the discrepancy between default probabilities implied by banks' credit ratings and those estimated by Merton-type (1974) structural-form credit models. Liao et al (2009) indicated that information asymmetry increases the interest conflicts between equity-and debt-holders due to less information transparency, making firm value more volatile. 9 However, few studies directly investigate the relationship between information asymmetry and corporate bond yield spreads, and even fewer discuss this relationship using information asymmetry measures based on non-liquidity and non-accounting information.…”

“…Many studies address the effects of information uncertainty for equity returns, but relatively few studies examine these effects on bond yield spreads. 2 Liao et al (2009) demonstrated that information asymmetry plays a critical role in causing the differences between default probabilities implied by 0378-4266/$ -see front matter Ó 2010 Elsevier B.V. All rights reserved. doi:10.1016/j.jbankfin.2010.02.013 bank credit ratings and those estimated by Merton-type structuralform credit models.…”

Economic value in tranching of syndicated loans

“…Also, I have not considered the role of information asymmetry in my model. Information asymmetry significantly causes deviations in bank credit risk evaluation (Liao et al, 2009). The existence of a prior relationship between a borrower and a bank can mitigate the perceived credit risk of the borrower.…”