Risk premia and the pricing of primary issue bonds

Lamy, Robert E.; Thompson, G. Rodney

doi:10.1016/0378-4266(88)90022-2

Cited by 47 publications

(24 citation statements)

References 32 publications

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“…Lamy and Thompson (1988) found that the rate premium on primary issue corporate bonds increased rather than decreased with Treasury rates in a model in which risk (as measured by bond ratings) was controlled for and interacted with changes in Treasury rates. Their procedure is similar to our interactions between loan contract features and TRA TE.…”

Section: Proportions Test Resultsmentioning

confidence: 99%

Some Evidence on the Empirical Significance of Credit Rationing

Berger¹,

Udell²

1992

Journal of Political Economy

423

200

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This paper examines the credit rationing debate using detailed contract information on over one million commercial bank loans from 1977 to 1988. While commercial loan rates are "sticky," consistent with rationing, this stickiness varies with loan contract terms in ways that are not predicted by equilibrium credit rationing theory. In addition, the proportion of new loans issued under commitment does not increase significantly when credit markets are tight, despite the fact that borrowers without commitments can be rationed whereas commitment borrowers are contractually insulated from rationing. Overall, the data suggest that equilibrium rationing is not a significant macroeconomic phenomenon.

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Section: Proportions Test Resultsmentioning

confidence: 99%

Some Evidence on the Empirical Significance of Credit Rationing

Berger¹,

Udell²

1992

Journal of Political Economy

423

200

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“…Similar to the work of Ederington, Yawitz and Roberts (1987), Lamy and Thompson (1988), and Allen, Lamy and Thompson (1990) we represent the bond ratings as a series of binary indicator variables. This method of incorporating bond ratings into the bond yield model allows for unequal risk premiums across rating classes, i.e.…”

Section: Bond Yieldsmentioning

confidence: 99%

“…Moody's, Standard & Poor's or Fitch), the bond yield is ultimately determined by an alternative process in the marketplace. To investigate the direct effect of the earnings predictability measures variables on the actual bond yield, we utilize a model developed based on the work of Ederington, Yawitz and Roberts (1987), Lamy and Thompson (1988), and Allen, Lamy and Thompson 15 (1990) where:…”

Section: Bond Yieldsmentioning

confidence: 99%

Earnings Predictability, Bond Ratings, and Bond Yields

Crabtree

Maher

2005

Rev Quant Finan Acc

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We examine the role that earnings predictability plays in establishing a firm’s cost of debt capital by measuring its influence on establishing a new issue’s bond rating. In addition, we also examine the effects of earnings predictability on the initial pricing of the firm’s debt. Using new corporate bond issues from the period 1990–2000, our results indicate that the degree of predictability of a firm’s earnings is positively associated with a firm’s bond rating. Moreover, earnings predictability is also documented to be negatively associated with the offering yield. Importantly, bond rating classification accuracy is improved when specific measures of a firm’s earnings predictability are added to a robust model. Copyright Springer Science + Business Media, Inc. 2005

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“…Additional firm-specific explanatory variables are included in the RATING models based on a survey of prior research on the determinants of corporate bond ratings (e.g., Horrigan, 1966;Kaplan and Urwitz, 1979;Boardman and McEnally, 1981;Lamy and Thompson, 1988;Ziebart and Reiter, 1992). The accounting-based ratios of debt-to-assets (LEV), return-on-assets (ROA), and interest coverage (INT_COV) are used to proxy for firms' default risk, where higher LEV and lower ROA and INT_COV values reflect greater default risk.…”

Section: Control Variables-firm Characteristicsmentioning

confidence: 99%